This week turned out to be quite interesting on the energy front. To start out with the big catalyst of the week, OPEC+ came to the decision to maintain production cuts into the second quarter of 2024, citing the strength of the US economy may push up oil demand while OECD Europe may create some headwinds as economic growth slows. Arguably, much of the world is already going through a recession, or is on the brink of one, with Japan, Germany and much of the EU Bloc, and China all experiencing pullbacks in economic activity. The question is, will it get worse before it gets better?
The organization went on to suggest that liquids supply growth will be driven by the US, Brazil, Canada, Norway, Kazakhstan, and Guyana. Domestic production has turned parabolic, far surpassing the 2019 high watermark. There may be some trouble in surrounding areas in the Latin American region as Venezuela has dished out some threats towards ExxonMobil as the oil major seeks to expand their production across neighboring blocs. Though I believe Maduro is all bark with no bite, his retaliation isn’t what keeps me up at night. It’s US policy that will create the impediment for future production if retaliatory measures were to arise.
On the domestic front, production efficiencies are on the rise despite the narrative of the great decline of quality wells. Having spent the first quarter of the year focusing on producers, midstream, and services, it is very apparent that E&Ps aren’t just seeking to top grade wells but to squeeze as much recovery out of their wells as possible. This ties in the “use” factor in carbon capture use and sequestering.
What E&Ps are finding is that by drilling longer laterals and injecting wells with CO2, the decline curve lengthens with stronger production volumes. In short, E&Ps are making more for less. This has led to margin improvement, higher returns per well, and a lesser necessity for rigs.
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