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US Shale Industry on $84b Spree

US Shale Industry on $84b SpreeUS Shale Industry on $84b Spree

Shale explorers in the US are boosting drilling budgets 10 times faster than the rest of the world to harvest fields that register fat profits even with the recent drop in oil prices.

Flush with cash from a short-lived OPEC-led crude rally, North American drillers plan to lift their 2017 outlays by 32% to $84 billion, compared with just 3% for international projects, according to analysts at Barclays Plc, Bloomberg reported.

Much of the increase in spending is flowing into the Permian Basin, a sprawling, mile-thick accumulation of crude beneath Texas and New Mexico, where producers have been reaping double-digit returns even with oil commanding less than half what it did in 2014.

That is bad news for OPEC and its partners in a global campaign to crimp supplies and elevate prices. Wood Mackenzie Ltd. estimates that new spending will add 800,000 barrels of North American crude this year, equivalent to 44% of the reductions announced by the OPEC and non-OPEC producers such as Russia.

“The specter of American supply is real,” Roy Martin, a Wood Mackenzie research analyst in Houston, said in a telephone interview. “The level of capital budget increases really surprised us.”

Drilling budgets around the world collapsed in 2016 as the worst crude market collapse in a generation erased cash flows, forcing explorers to cancel expansion projects, cut jobs and sell oil and natural gas fields to raise cash.

The pain also swept across the Organization of Petroleum Exporting Countries, which in November relented by agreeing with several non-OPEC nations to curb output by 1.8 million barrels a day.

Independent American explorers such as EOG Resources Inc. and Pioneer Natural Resources Co. are holding fast to their ambitious growth plans.

EOG, the second-largest US explorer that does not own refineries, plans to boost spending by 44% this year to between $3.7 billion and $4.1 billion. Pioneer is eyeing a 33% increase to $2.8 billion.

US oil production is already swelling, even though output from the new wells being drilled will not materialize above ground for months. The Energy Department’s statistics arm raised its full-year 2017 supply estimate to 9.31 million barrels a day on Tuesday, a 1% increase from the April forecast.

Next year, US fields will pump 9.96 million barrels a day, 0.6% more than the department estimated last month.

But most of the biggest US and European explorers -- an elite caucus of five companies known as the supermajors -- are pursuing a contrary path and cutting expenditures this year.

As deepwater, oil-sands and other high cost, high risk investments soured during the slump, the supermajors were battered and had to regroup. But shale drillers, unburdened by such large-scale projects, have been better able to quickly respond to price changes.

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