In Europe, fears of a potentially deep recession continue to be felt. In the meantime, these fears seem to have subsided in North America, at least in the oil industry. Instead, it’s back to growth mode for the shale plot and the oil sands.
That’s according to Schlumberger, whose chief executive said This week, activity in the North American oil industry grew faster than expected, with companies’ biggest concern no longer the possibility of the economy slipping into a recession, but the supply of sufficient equipment.
Equipment security appears to have lingered after the worst of the pandemic-induced supply chain chaos subsided. Bloomberg reported that many companies struggled to get the fracking equipment they need earlier this month due to the shortage.
The report noted that oilfield service providers, including Halliburton, were “reconditioning” existing equipment rather than building new ones due to their wariness that another downturn would render such an investment useless. Among the things missing are fracking pumps and fracking crews: the labor shortage has also persisted post-pandemic.
“We’re kind of in unprecedented territory here,” Rob Mathey, principal analyst at Rystad Energy, told Bloomberg. This supply situation, he said, “is really going to cause problems with E&Ps trying to grow.”
Schlumberger’s Olivier La Peuch, however, sounded on a much more upbeat note this week. “There’s huge momentum,” he told an industry event quoted by Reuters, adding that investment rates in the industry were “something I hadn’t seen since a while”.
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There are also more signs of a return to optimism in the US oil industry. The recent merger between Colgate Energy and Centennial Resource Development is one of them. The owners of Colgate Energy believe U.S. oil production will increase, and it will increase because of the low-cost shale acreage in the Delaware Basin, which is part of the Permian Zone.
“Growth becomes more difficult over time as the best inventory in North America is depleted,” James Walter told Bloomberg. “Delaware has more room to operate and more prime undeveloped inventory than any other basin.”
Yet despite the optimistic sentiment shown by Schlumberger and Colgate Energy, the Energy Information Administration has just downgraded its 2023 production outlook from around 70,000 barrels per day to 12.63 million bpd. While not a huge overhaul, the figure suggests there are still barriers to full growth.
In Canada, meanwhile, production is growing, hitting a new record in the first half in Alberta at 3.6 million barrels per day. Despite the tightening noose on emissions reductions, Canada’s oil industry is ramping up production and reaping the rewards advantages higher prices. The government shares in the profits, as record profits lead to higher taxes going into state coffers.
“Imagine an ATM that’s broken, and it spits out $100 bills and there aren’t enough people to pick them up and there are $100 bills piling up on the floor. That’s how profitable these companies are right now,” described a Canoe Financial portfolio manager. at CBC.
Canadian oil producers do not appear to be facing the same equipment and labor shortage issues as their American counterparts. Yet they are up against the federal government’s drive to reduce the industry’s carbon footprint. This could dampen their enthusiasm for growth as they declare their support for net zero and pledge to invest in it.
It looks like optimism is back for US and Canadian oil, but with a sense of wariness after the latest downturn crushed the industry. Government net-zero plans add to this distrust, but with demand for fossil fuels still strong, it makes sense for the industry to benefit while it lasts.
By Charles Kennedy for Oilprice.com
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