2020 was not the best year for the oil industry. Prices famously crashed in early March due to the coronavirus pandemic, which has severely curtailed global demand for petroleum production.
The US shale patch, where oil and gas are produced through fracking, has experienced an unprecedented number of bankruptcies filed by operators since the second quarter.
However, a series of new mergers and acquisitions (M&A) deals recently executed in the industry have now signalled new opportunities and “renewed optimism” among drillers that have been “gradually” adapting to “the new pricing environment”, the latest report from consulting giant GlobalData suggests.
“The COVID-19 pandemic and the decline in crude prices severely impacted the drilling activities across all major shale plays leading to decline in production,” explains Andrew Folse, Oil and Gas Analyst at GlobalData.
“In May 2020, the total crude production across the major US shale plays dropped to as low as 6.3 million barrels per day. However, the production has recovered somewhat since then.”
Big Loses and New Opportunities
Among 17 major operators in the industry, an aggregate of approximately $38 billion in total capital expenditure (capex) has been cut this year; Exxon and Chevron have cut the most: $10 billion and $6 billion, respectively. However, the largest drop, in percentage terms, was reported by Occidental Petroleum (55%).
This was especially visible during the second quarter of 2020, when the Permian Basin oil field reported a production cut of approximately 1 million barrels in a day, the worst fall in the whole oil industry.
Analysts from Global Data now estimate that total production of crude oil across the largest shale playsin the country, including Permian Basin, Bakken, DJ Basin and Eagle Ford, will “remain flat” throughout next year, producing 7.1 to 7.2 million barrels per day.
The production coming from the first basin now seems especially promising for analysts, as “in all of the recent deals and likely in future mergers, there is a significant acreage in unconventional areas involved”, insists Folse.
According to the analyst, the Permian Basin “remains the most attractive acreage in the US Lower 48 and provides very competitive payback periods, measured in months, unlike offshore projects where the payback periods are usually measured in years”.
So far, among the most opportunistic mergers that have helped to increase operational scale and efficiency, according to the report, were Chevron’s 13-billion acquisition of Noble Energy and ConocoPhillips’s buyout of Concho Resources, as well as the Devon–WPX merge.
Cash Infusion and Biden’s Promises
Despite this optimistic outlook, it’s hard to deny that the whole oil industry has significantly suffered in the last six months, with thousands of jobs lost in most lucrative production fields across the country.
Companies continued resorting to government for help, with the fossil industry eventually receiving between $10.4 billion and $15.2 billion in direct economic relief, according to analysis from BailoutWatch, Public Citizen, and Friends of the Earth, cited by Oilprice.com.
Moreover, the Paycheck Protection Program has helped to save over a half of the oilfield jobs in the state of Texas with more than $1 billion in forgivable loans to companies, a Houston Chronicle analysis revealed in July.
Questions now arise as to whether Joe Biden’s potential administration, if the Democratic candidate is confirmed by the Electoral College in December despite opposition from incumbent President Donald Trump, will make it even more difficult for the industry to remain afloat amid the ex-vice president’s green deal promises.
Experts now believe that it’s unlikely that Joe Biden will ban fracking all together, which helps the US to continue calling itself the biggest oil producer in the world. However, Biden has vowed to ban unconventional production of oil and gas in federal lands and waters. One the one hand, this could be beneficial to an oil-rich state of Texas, where there are no federal leases.
But the initiative could emerge as potentially grave for the rest of the country, as according to the American Petroleum Institute, this drilling ban could lead to 120,000 job lost in the industry by 2022, and even cost the US oil production more than 1.1 million barrels per day by the middle of this decade.