Oil and gas sector shows recovery in second quarter led by private companies, higher prices
Energize Weekly, September 22, 2021
The U.S. onshore oil and gas industry saw the beginnings of a rebound in the second quarter of 2021 buoyed by strong commodity prices, strategic mergers, and increased efficiency, according to a market report by the Colorado School of Mines’ Payne Institute.
Private companies led the increase in activity as publicly traded companies “continue to try to win back investors by spending less of their cash flow,” the report said. “Private companies have continued to take advantage of higher oil prices to drill more wells.”
The average oil price for the quarter was $66.16 a barrel, compared with $29.14 in the second quarter of 2020. Production rose to 11.2 million barrels a day in the quarter, about a 4 percent increase year-over-year.
The rig count, which fell to 240 in the third quarter of 2020, was up to 486 in the second quarter of 2021, though still well off the pre-pandemic high of 763.
Overall, however, much of the industry spending was focused not on drilling, but on well completions, which continued to get more efficient.
The number of drilled but uncompleted wells, which stood at 8,400 at the end of 2019, had dropped to 6,387 by the end of the second quarter of 2021.
Oilfield employment rose to 404,000 in the second quarter of 2021 after hitting a pandemic low of 372,000 in the fourth quarter of 2020. Employment stood at 472,000 at the end of 2019.
The combination of higher oil prices, private company activity and increase oilfield efficiency are having an impact. “All three contributed to oil production continuing its recovery despite the lower rig count and suggest more production recovery is to come,” the report said.
Still, some companies, particularly publicly traded ones, are holding back on investing in boosting production because OPEC members still have spare capacity and because of the risk to demand by the resurgence of COVID-19.
The growth in oilfield activity has varied greatly across basins, the report found. New Mexico showed the biggest recovery with its rig count down 35 percent from its pre-pandemic peak compared with North Dakota where rigs were down 65 percent from the peak and Texas, which accounts for just under half the rigs in the country, still down 45 percent from the count at the start of 2020.
The revival of the industry can also be seen in the figures on bankruptcies and mergers. Bankruptcies were down to four in the second quarter of 2021 compared to almost 18 a quarter in the second half of 2020.
There have been two waves of acquisitions in the U.S. upstream market in the last 15 months. The first, in the third quarter of 2020, was marked by big multimillion-dollar mergers between public companies, such as the Chevron-Noble Energy and ConocoPhillips-Concho Resources deals.
The second wave, which started in December 2020 and resumed in the second quarter of 2021, has been “more localized.”
While there may be cost savings and efficiencies, which were a prime target of the big mergers, a major focus of the second round of acquisitions has been adding complementary acreage in the same field or basin in which the purchaser is operating with an eye to longer-term efficient production.
There were some large acquisitions, such as the Pioneer Natural Resources purchase of Permian operator DoublePoint Energy for $6.4 billion. In all, there were 40 transactions worth $33 billion.
“The implications of industry consolidation for spending and employment can be unclear,” the Payne Institute report said. “However, the recent wave of acquisitions does include companies that were operating with cash constraints, lending to a bias that the mergers foster more oilfield activity and employment all else being equal.”