U.S. shale producers that spent the last year promising to control capital spending and adhere to strict financial controls are finding the lure of higher oil prices irresistible.
Several, including producers Parsley Energy
Last year, investors pressured shale companies, hard-bitten by the 2014 downturn in prices, to rein in spending and return more capital to shareholders through dividends and share buybacks, selling stocks of companies that spent more on drilling.
Oil prices have climbed by about 40 percent in the past year, with the U.S. benchmark
Derek Rollingson, portfolio manager of the ICON Energy Fund
"It makes sense in this environment given the strength of the forward (oil) contracts," he said.
Continental Resources Chief Executive Officer Harold Hamm on Wednesday said oil prices could jump another 10 percent before levelling off, aided by U.S. sanctions on major oil producer Iran.
Pioneer this week said it would expand its 2018 budget by around $450 million, with roughly 60 percent of that due to rising costs and around 35 percent stemming from increased production activity.
Pioneer this year executed a $100 million share buyback program. When asked on its earnings call about the potential for additional buybacks, Chief Executive Officer Timothy Dove said the company would wait until it was generating positive cash-flow.
The company remained committed to financial discipline, executives added.
Top Bakken shale producer Continental increased its budget by roughly $400 million, with about half of that allocated to adding rigs and well-completions.
Continental does not hedge its oil production, something the company on Wednesday said had enabled it to better benefit from this year`s bump in oil prices.
Parsley Energy, which operates in the Permian Basin of West Texas and New Mexico, will add $100 million to $200 million to its budget.
Pioneer and Parsley both attributed some of their increased costs to tightness in the labour market, as well as fuel and electricity cost.
The unemployment rate in Midland, Texas, where many Permian workers are based, was 2.4 percent in June, well below the national average of 3.9 percent.
"We`ve had a more significant increase in costs this year than we would have assumed," Pioneer`s Dove said during the company`s earnings call on Wednesday.
Dove expects pipeline constraints that are pushing down the price of Permian Basin crude to offset future increases in service costs, as companies opt to delay completing some wells.
He said service inflation would become a bigger issue in 2020 and 2021, when new pipeline connections begin to relieve bottlenecks, spurring operators to frack wells they had drilled when prices were lower but had not completed.
Rival independent oil producer EOG Resources
(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)