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Crude Summit: Higher US E&P capex seen in 2022

24 Jan 2022 23:12 GMT
Crude Summit: Higher US E&P capex seen in 2022

New York, 24 January (Argus) — After a year in which most US oil producers kept spending in check as they emerged from the pandemic, the sector is now gearing up to loosen its purse strings.

Investors and financiers at the Argus Americas Crude Summit in Houston, Texas, today said a rebound was only to be expected after a period of depressed drilling following the industry's collapse in 2020, as companies focused on paying down debt and boosting shareholder returns. Oil prices trading at multi-year highs will be an additional incentive.

"You are also starting to see some cost inflation on the capex side — drill pipe, tubulars and steel certainly are quite a bit more expensive than they were a year ago," said Jason DeLorenzo, managing partner at EnCap Investments. "So the overall dollars are going to be up."

Oil demand is quickly returning to pre-Covid 19 levels and more capital expenditure will be needed given the rate at which wells become depleted.

"I'm hoping this time around, we're more return-driven than just production-driven," said Ozzie Pagan, head of commodity financing Americas for Macquarie Group, referencing past busts when runaway growth spurred heavy losses.

While the top-producing Permian basin is likely to attract the lion's share of investment, other regions such as the Bakken and the Scoop and Stack plays of Oklahoma could also see increased interest as producers seek to cash in on inventory.

"The interesting thing is going be to how 2022 shakes out on a ratio basis," said Tom McConnell, business development and origination lead at Gunvor USA, referring to the mix between oil and gas in production. "As everybody starts to become more efficient with these completions and the technology, you may see a shift back to gas, at least wet gas."

The panel cautioned that the energy transition will take decades to materialize and investment in oil and gas will be needed in the meantime. "You can't do this by flipping a switch," said Pagan.

Most forecast modest growth in US output this year, and were skeptical that the industry could boost production by as much as 1mn b/d to make up any potential shortfall in global supplies.

"The Gulf of Mexico and the Permian are the two areas that we believe most of the production increases are going to come from," said McConnell. "In the other basins, we don't see any meaningful increase."

That outlook is unlikely to change for the time being.

"It's just not what the shareholders are asking from these companies to show a lot of growth — they want to see returns," said DeLorenzo.