Private oil producers are leading an industry return to places like the Anadarko Basin of Oklahoma and the DJ Basin in Colorado, where drilling had almost completely stopped in mid-2020 when those areas became unprofitable because of lower oil prices.
Oil production in these marginal regions isn’t expected to move the needle in the global market, which is facing tight supplies, but it could help some oil producers who have lost money in past years. Output in the contiguous US by year-end is expected to increase almost solely from the Permian Basin of West Texas and New Mexico, offset by declines elsewhere, according to energy consultant Wood Mackenzie.
Some of the largest shale companies told investors this past week they plan to remain disciplined on capital spending and limit production growth. But with oil climbing above $US90 a barrel, near the highest levels in more than seven years, some peripheral drilling, particularly by smaller companies, is now becoming more feasible even in places like Kansas and Utah, where wells produce far less oil than prolific fields in Texas and New Mexico. The regional revivals show the economic ripple effects when prices surge and mark a turnaround for companies hard-hit by the pandemic.
Brent, the global oil benchmark, rose to $US95.39 a barrel monday, up almost 2 per cent. Charter Oak Production is planning to bring one drilling rig back to the Anadarko Basin this month and contract a larger rig to work there until late 2022, in hopes of doubling or tripling its output from about 1,000 barrels a day. Though oil-field costs have climbed sharply amid new activity and inflation, Charter founder Joe Brevetti said the clock is ticking for his drilling plans because, at some point, high commodity prices will dent demand and lead to lower prices.
“We have a limited window of opportunity,” Mr Brevetti said. “Our costs are obviously up right now, but I’d rather have the higher costs and sell the product at $US90.” Mr Brevetti’s company waited out the oil-demand destruction wrought by the pandemic, slashing drilling activity and storing as many as 60,000 barrels of oil in empty tanks that typically hold other materials used in fracking, instead of selling the oil at low prices. Those moves were key to helping the company survive the downturn, he said.
