By Erin Ailworth
Despite all their spending cutbacks and idle drilling rigs,
American energy producers are finding it hard to turn off the taps
that have helped lead to a global glut of oil.
Rising crude production was a major theme in the past week as
shale drillers reported their second-quarter earnings.
Devon Energy Corp. and Whiting Petroleum Corp. said they pulled
record amounts of oil from the ground. Anadarko Petroleum Corp.
revealed that in some areas it has doubled the number of wells it
can drill with a single rig. And Pioneer Natural Resources Co. said
it plans to ramp up its drilling activity to pre-oil bust levels by
early next year.
Analysts say American oil pumpers need to cut their output by at
least 500,000 barrels a day to stem the oversupply that has sent
oil prices tumbling over the past 14 months to just under $45 a
barrel.
But monthly oil production rose steadily through March, peaking
at a record 9.7 million barrels a day that monthand just slightly
less in April, before edging down to 9.5 million barrels in May,
according to the latest federal data.
"We need to cut a whole lot more," said Jamie Webster, a senior
director at IHS Energy, a consultancy. "This industry has been
going through some pretty tough times in the last year, and it
keeps getting up off the mat."
For oil production to fall that far, Mr. Webster added, the
benchmark U.S. crude price will have to average $45 a barrel for at
least six months. Roughly 200 oil drilling rigs--about a third the
number working today--will also need to come out of the field by
2016.
But companies keep finding ways to drill wells faster and
cheaper in an effort to deal with oil that is selling for half the
price it was a year ago. They had little incentive to be so
innovative when crude oil traded at around $100 a barrel.
"If you step back and think about what happens at $100 oil, you
don't have a lot of efficiencies," said David Tameron, a senior
analyst at Wells Fargo Securities. "Everyone has so much cash it
doesn't matter."
But now, the easiest way for many producers to make up revenue
lost to declining oil prices is to pump more.
So even though companies recognize that pulling more fuel from
the ground won't ease the supply glut that is pressuring prices
lower, scaling back isn't necessarily an option.
The struggle has been apparent as U.S. producers reported their
second-quarter earnings. Even as falling oil prices have companies
taking write-downs worth millions--and in some cases billions--or
disclosing losses and shrinking revenues, analysts say they have
repeatedly been surprised by better than expected production
results and increases in full-year production estimates.
Whiting, the biggest shale producer in North Dakota, pumped
170,000 barrels of oil equivalent a day in the second quarter--a
record amount for the company.
"We are tooling Whiting to run and grow at $40 to $50 oil,"
Chief Executive James Volker said.
Amid a refrain about keeping growth in check, executives at
Anadarko, a Texas-based oil and gas producer, told analysts last
week that the company has doubled its rig efficiency. Anadarko can
now drill 70 wells with one rig in Colorado's Wattenberg field,
compared with 35 wells per rig a year ago. The company posted a
$61-million profit on revenue of $2.6 billion--both down
significantly from the same period last year.
Time after time in the past week, energy companies revealed
swelling oil-production figures. Devon, based in Oklahoma City,
said it pumped more than 30% more crude in the second quarter
compared with the prior-year period, and said it is on track to
produce up to 35% more oil this year compared with last. The
company reported a $2.8 billion loss on revenue of $3.4
billion.
Meanwhile, Pioneer Natural Resources, based in Irving, Texas,
expects to pump at least 10% more oil this year than it did in
2014, and earlier this week reiterated plans to add two rigs a
month back to its oil patches between now and year's end. It will
also add eight rigs in the first three months of 2016.
That ramp up, Chief Executive Scott Sheffield said, will bring
drilling activity back to the level it was before oil prices
collapsed in late 2014.
"It's important to show growth as long as we're having very good
returns, " Mr. Sheffield said. Pioneer posted a loss of $218
million in the second quarter, including a $222 million write-down
on the value of its hedges, as its revenue fell 30% to $648
million.
Even natural-gas producers--also dealing with low commodity
prices--are finding it hard to choke back.
Steven Mueller, chief executive of Southwestern Energy Co. in
Houston, said he sees little incentive to grow right now, but can't
justify holding off on drilling for a year--and delaying returns to
shareholders--unless he expects prices to rise dramatically. He
doesn't.
"You have to be really bullish on prices to delay," he said. "So
we'll take our best guess at the future, we'll drill what looks
economic and if there happens to be growth, there will be
growth."
Write to Erin Ailworth at Erin.Ailworth@wsj.com
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