The U.S. shale oil recovery is now gaining momentum, and for the first time since September 2014, the U.S. oil and gas extraction and support services jobs increased by 3,300 in November, according to the U.S. Bureau of Labor Statistics (BLS) data.
Though the increase is small compared to the whopping 155,000 job cuts over the past two years, the increase is an indication that the cycle in the industry is finally starting to swing in another direction.
The shale oil companies should thank their OPEC counterparts—their talks to cut production boosted oil prices by about 25 percent since mid-November.
The shale oil drillers have taken advantage of the higher crude oil prices to hedge for 2017. Pioneer, one of the better run shale oil producers, has hedged 75 percent of its 2017 output at an average price of $50 per barrel.
This recovery in shale oil is gaining a foothold, and is likely to continue even in 2017 and 2018, barring any black swan event.
The total oil rig count has gone up to 529 in the week to January 6, from the lows of 316 rigs in May. Out of the total addition of 213 rigs, 104 rigs have been added since September 2016, the most since the first-quarter of 2014, when oil prices were trading above $100 per barrel.
The good news is that the industry will continue to add rigs both in 2017 and 2018, according to analysts from Simmons & Co, energy specialists for U.S. investment bank Piper Jaffray. They forecast the number of active oil and gas rigs to average 763 in 2017 and 877 in 2018, a considerable increase from the average 509 in 2016, reports Reuters.
Since the collapse in oil prices, oil companies have been squeezing their budget and have postponed their capital spending. However, things are looking up once again, as 25 exploration and production companies (E&P) plan to increase their spending by 33 percent in 2017 over 2016, according to analysts at U.S. financial services firm Cowen & Co. This is significant, as the spending had decreased 35 percent in 2015 and 47 percent in 2016, over the previous year.
Encouraged by the higher oil prices, shale oil companies are raising money to expand their operations in 2017. While November did not see any money being raised, December saw some big deals after the OPEC production cut deal - Diamondback Energy raised $1 billion and Gulfport Energy raised $717 million.
"It wouldn't be surprising to see another wave of this in January," said Jason Wangler, an analyst at Wunderlich Securities in Houston.
The energy industry is also hoping that the President-elect Donald Trump will reduce regulations and provide a boost to the industry.
Nevertheless, the shale oil industry will take calculated steps to avoid flooding the market with oil, thereby negating the effects of the production cut undertaken by the OPEC nations.
“There’s a real concern by industry that we could be in for another one of these price adjustments, if we get carried away with development,” Harold Hamm, chief executive officer of Oklahoma-based Continental, said in an interview in New York. “They’re going to be disciplined going forward.”
By Rakesh Upadhyay for Oilprice.com
Related Stories
