BAKU, Azerbaijan, August 31. During the second quarter of 2023, the reinvestment rate for US shale oil producers reached its highest point in three years, Trend reports.
However, according to research conducted by Rystad Energy, an independent energy research and business intelligence company from Norway, this recent trajectory is not expected to be sustained. The study focused on a subset of 18 publicly traded companies, excluding major players, which collectively contributed about 40 percent of the total US shale oil production in 2022.
In the specified group, the reinvestment rate marked 72 percent in the second quarter, up from the 58 percent recorded in the first quarter. This figure was the highest since the 150 percent rate observed in the second quarter of 2020. The reinvestment rate, calculated as the ratio between capital expenditure and cash flow operations (CFO), offers insight into financial allocation.
The escalation of drilling and completion costs due to inflation, combined with subdued oil prices impacting cash flow, has contributed to the rise in capital expenditure. Over ten consecutive quarters, capital expenditure within this group has ascended, reaching $9.7 billion in the second quarter of the current year, compared to $7.8 billion during the same period in 2022. In contrast, the collective CFO for the group has been in a steady decline since the third quarter of 2022, when it peaked at $24.6 billion—coinciding with the oil price surge following Russia-Ukraine war. The recent figure for CFO stands at $13.5 billion.
However, this pattern is anticipated to reverse by the close of 2023, Rystad Energy believes. As inflation abates and global oil prices experience a gradual increase due to persistent supply constraints, forecasts predict a diminishing reinvestment rate leading up to 2024. A majority of operators have expended over 50 percent of their guided 2023 budgets during the initial two quarters, with several having only 45 percent or even less to allocate. Insights from management's earnings call guidance also suggest an imminent trend of cost deflation across various sectors.