This week, three energy groups raised expectations of U.S. oil production. While it is said that U.S. production will increase in 2018 years, there is no agreement on drilling oil production in the United States.
In Tuesday, the U.S. Energy Information Agency said U.S. output is expected to grow by 780,000 barrels/day in 2018, and in Wednesday, OPEC predicts that U.S. production will grow by 1.05 million barrels/day next year, while the IEA said in Thursday that U.S. crude oil production is expected to increase by 870,000 barrels/day next year.
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At the same time, the IEA Analysys Energy Agency said in its monthly report that the US shale oil industry would start new production very quickly, and its flexibility and innovation made it difficult for market forecasters to speculate about the 2018-year supply of oil in the US.
Matt Smith, ClipperData’s commodity research director, said that this was a considerable margin of error, so the key point was that no one knew exactly what the U.S. crude supply would be next year, but it was certain that production would not be small.
Shale producers in the United States in the past have sharply increased production due to higher oil prices. Oil prices are rising now, so it will be more difficult to estimate the oil production in the US next year. But now many are saying they are focusing on generating positive cash flows and returning money to shareholders.
This means that they may have less money to invest in new production, so the continued rise in oil prices may not produce the same output growth in the past.
The IEA says U.S. shale oil production will be modest, suggesting that they want stronger prices as a chance to consolidate themselves rather than recklessly.
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Independent rig companies have long relied heavily on borrowing to increase production and are widely criticized for not cashing in on positive cash-flow promises. But shareholders have said this year that they want the rig company to be able to shun its financial position.
However, some analysts believe that focusing on financial constraints does not necessarily lead to a significant drag on overall U.S. production growth.
Even if the drillers try to adjust their balance sheets, U.S. output could grow by 1 million barrels/day next year, Barclays analysts said.
The bank’s equity research analysts say many listed companies are now cautious about spending but can still increase output. While some drillers may shrink capital spending, buy back shares from shareholders or invest in higher dividends, many drillers will stick to their short-and medium-term plans.
Analysts at financial services firm Stifel also believe that some of the listed drilling companies could increase production without overdraft because of higher oil prices.
September, the company estimated that its rig companies involved in crude oil production will increase by 20% next year, spending will exceed its cash flow of 3.2 billion U.S. dollars. Last month, with oil prices up 9% per cent since September, these companies will increase their crude oil production by 18% next year and spend 3.1 billion dollars less than cash flow.
According to Stifel’s study, 2018 free cash flow yields were among the best companies including German energy (Devon), Continental Resources (Continental), Marathon Oil (marathon), Nuefeld Exploration ( Newfield exploration) and Abraxas Oil (Abraxas petroleum).
However, Stifel says many small and medium-sized drilling companies will struggle to generate positive cash flows and output growth, so the potential for increasing their productivity remains questionable.
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