That is a great question. It is a much tougher answer than just the “Shale Oil Boom Version 2.0”. With WTI at $81.89 at the time of this article, let’s go through a couple of key points this morning.
The world is in the single largest commodities boom in history brought on by the printing of world currencies to pay for renewable projects, the migration to renewable energy without a migration plan, investors demanding returns from the oil companies in months rather than years (which they should) the shattering in the just in time inventory supply chain around the world, and the literal geopolitical jocking for power and resources.
Countries have gone to war for a lot less than any of the above topics in the past, and some even say that the gulf war was over oil. Putin and the renewable movement killed the “Shale Oil Boom Version 1.0” But the ESG and renewable demanding investors will actually be the key drivers behind the “Shale Oil Boom Version 2.0”. They have successfully forced all of the publicly traded oil and gas E&P companies to not properly fund the drilling programs to replace the normal decline curves. The privately-owned operators will have to pick up the slack.
Now that the privately-owned operators are literally the Marines sent to take the beach, we will see if they can pull together enough to combat the Russian energy attack on Europe.
This morning Bloomberg published “Shale Oil Is Booming Again in the Permian” with the byline: “With publicly-traded producers such as Occidental and Chevron preaching discipline, privately-owned operators are leading the surge in production.”
Oil prices around $80 a barrel are once again spurring a revival of shale drilling in America’s biggest oil field, where production is expected to return to pre-pandemic highs within weeks.
Only this time, the surge is being driven by private operators, rather than the publicly traded companies that fueled the previous booms. And they see little reason to slow things down.
It’s a tenuous balance and one that could shift quickly if oil prices continue to march higher. U.S. production growth was so strong over the past decade—and took so much market share from OPEC and its allies—that the cartel was willing to engage in all-out supply wars in both 2014 and 2020. The temperature has since come down as global demand for oil surges, especially amid a need to supply fuel-hungry Europe and Asia, removing some competitive pressure between suppliers.
The Bottom Line
Right now the ultimate question is will Russia and OPEC be distracted enough to keep their “Power Play” (pun intended) on Europe’s energy disaster, or will they try to lower the price of oil and natural gas to squash the “US Shale Boom V 2.0”?
My King Operating research team’s answer is “No”. Both have too much to gain from the higher energy prices. Saudi Arabia’s announcement that they are projecting the first countries’ budget surpluses in years is no small announcement. Putin has been playing a successful geopolitical energy chess match for years. He is within two moves to checkmate.
We will see rigs flying in the air shortly around the Permian, and they will be from the privately held operators. But the following M&A activity in the next few years will be very interesting to watch as it will be quiet but dramatic.
The losers of all of this will always be the consumers.
Buckle up, get your delta wing flight suit on, we are in for some interesting times ahead.
Send me your thoughts and I would like to hear from you about your thoughts on the current market.
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