American schists should not quickly replace barrels lost during an attack on Saudi facilities

HOUSTON: US shale producers have added millions of barrels to the world's crude supply, but that does not mean they can quickly replace the barrels lost in weekend attacks against oil rigs. Saudi Aramco, energy experts said Sunday.

Shale growers have reduced their budgets and manpower and production targets this year after years of heavy spending. Investors continue to face strong pressure to limit spending and return money to shareholders through buybacks and dividends rather than increasing drilling activity.

Shale is a short cycle oil supply – capable of adding or reducing production relatively quickly. Producers will see increased demand, especially from Asian buyers. But producers need 90 to 180 days to drill, complete and put on line new productions.

About 1,000 Permian wells have been drilled but not completed or connected to pipelines, said Bernadette Johnson, vice president of market intelligence at Enverus Consultants.

The shale "can not just open the faucet," she said, adding, "The infrastructure is just not there yet to haul it to the coast."

Representatives of Exxon Mobil Corp, Royal Dutch Shell and Chevron Corp, all producing shale, declined to comment on the potential impact on their operations.

If the attacks resulted in sustained US oil prices at around $ 60 per barrel, US production could increase by about 2 million barrels a day next year, up from about 1 million barrels this year. Johnson said.

US oil companies could see some benefits. Strikes in Saudi Arabia destroyed oil processing facilities and the production of the Khurais oil field, which produces a light oil similar to that of shale producers.

The Eagle Ford Shale deposit in South Texas can increase supplies and prices in the middle of the $ 60 would result in the gradual addition of platforms to locally operating companies. Still, his ultra-light and sweet barrels are not similar enough to be a good substitute for the lost Arab Light oil, Johnson said.

Shale producers could generally use the expected jump in crude oil prices to add hedges or contracts that block future prices, which would allow them to offset some of the expected price increases, said Matt Portillo, managing director of the firm. Tudor Investment Bank, Pickering, Holt & Co..

"Producers will take the highest prices and use them primarily for balance sheet repair or the acceleration of returns for shareholders," said Portillo.

US oil companies operating in the Permian Basin will "not change their plans this week based on what happened in Saudi Arabia," said Lipow Oil Associates' consulting firm, Lipow Oil Associates.

(Jennifer Hiller report, edited by Peter Cooney)