The number of active oil, gas and other drilling rigs in the USA since the beginning of 2020 has decreased by more than two and a half times and reached 301. This is evidenced by the latest data from Baker Hughes.
As follows from the materials of the American Energy Information Administration (EIA), drilling activity in the United States has weakened to a minimum for the entire time of official observations - since the 1940s.
As a result of the reduction in global fuel demand due to the COVID-19 pandemic and a sharp drop in oil prices in recent months, the extraction of raw materials has become unprofitable for most shale companies. About this in an interview with RT told the economist of BCS Premier Anton Pokatovich.
“Keeping prices at the current level of $ 34-37 per barrel makes production at the US shale deposits unprofitable, since the cost of production of such raw materials is more than $ 40 per barrel. To reduce costs, companies have to abandon the introduction of new drilling facilities, which leads to significant production losses, ”the expert predicts.
Since the beginning of the year, a barrel of American WTI crude oil has fallen in price by almost half and is currently trading near the $ 35 mark. In April, for the first time in history, the price of an exchange contract for the supply of raw materials fell to negative values. As Anna Bodrova, senior analyst at Alpari Information and Analytical Center, explained to RT, the reservoirs of the world's oil storage tanks were almost full and the contract holders themselves were willing to pay for the refusal to accept raw materials.
“Investors feared that as a result of the load on the storage facilities, there would simply be nowhere to supply oil. Such a scenario would mean the collapse of the US shale industry. As a result, the Americans tried to remove excess supply on the market by reducing drilling activity. However, this still does not help much, since shale companies have come to an oil recession with a lot of debts, the total amount of which now exceeds $ 86 billion, ”Bodrova said.
According to Haynes & Boone, from the beginning of 2015 to the first quarter of 2020, 215 energy companies went bankrupt in North America. Their total debt amounted to $ 129.4 billion. Of this amount, $ 70.35 billion accounted for unsecured loans. According to experts, under current conditions, by the end of 2020, the number of bankrupt producers of raw materials will continue to grow.
“In April, one of the largest oil companies in North Dakota, Whiting Petroleum, announced the start of the bankruptcy procedure, which survived the previous crisis of low commodity prices in 2014-2016. Moreover, approximately half of the 60 key US oil producers without significant financial support will be forced to stop production, ”said Sergei Pikin, director of the Energy Development Fund, RT.
Eastern investor
In addition to the high debt burden, an additional blow to the financial situation of American shales was a sharp outflow of investment. As oil prices fell and the global economy slowed down because of the coronavirus, global investors began to massively sell securities of US energy companies. Meanwhile, Sergei Pikin believes that today China may be interested in buying cheaper assets.
“Traditionally, China's investment policy has focused on transactions with assets in their low position. Currently, shares of key US corporations are trading at lows: since the beginning of March, the value of Occidental Petroleum securities has fallen by more than 60%, and the stock quotes Continental Resources and EOG Resources have sank by an average of 30-40%. For Beijing, which is the world's leading oil importer, this is a good time to enter the US energy market, ”said Sergey Pikin.
According to experts, the Asian Republic has previously tried to get a stake in US commodity concerns. So, back in 2010, the Chinese oil company CNOOC invested $ 2.16 billion in the development of the American Cheasapeake Energy at the Eagle Ford field. In 2013, the China Petrochemical Corporation (Sinopec) invested $ 1.02 billion in Oklahoma’s oil and gas infrastructure. Then, in 2015, Yantai Xinchao Industry bought part of the Texas oil fields for $ 1.3 billion.
Meanwhile, at the moment, China cannot fully redeem any of the US fields, since the oil sector is included in the category of strategically important sectors of the national economy. According to US law, foreign investors can only act as shareholders and conduct mining only through American companies. The head of the HSE School of Oriental Studies, Alexei Maslov, spoke about this in an interview with RT.
“For China, this rule also applies, which impedes Beijing's entry into the US energy market. Moreover, if the oil regulator in the person of the Texas Railway Commission notices the repurchase of a large number of assets by Chinese investment funds, then they have the right to cancel the transaction and transfer the rights to them to American companies, ”the expert noted.
- A dock worker wearing a face mask to prevent the spread of the coronavirus disease (COVID-19) looks at an oil tanker unloading crude oil at a port in Qingdao, Shandong province, China
- © China Daily via REUTERS
At the same time, China can use workarounds for more active entry into the American shale market. About this RT told the head of the analytical department of AMarkets Artyom Deev.
“In addition to buying shares, China can acquire assets through the creation of joint ventures, or through a separate organization that deals with securities in a completely different sector of the economy. Since the United States will very closely consider any such deal, Chinese companies will have to try to hide their interest in assets, but at the same time take over the American shale, ”the analyst said.
However, now in the US market there are practically no investors ready to invest in shale production, Anna Bodrova said. According to her, the outflow of capital from the industry more than doubled after the collapse of the cost of a barrel on raw material sites. Against this background, Washington may make concessions to foreign investors to help the oil industry.
“So far, the US authorities are only proposing to continue filling up the oil storage facilities, but they don’t allocate real funds to support the oil shale. At the same time, the main threat to the industry is a massive stoppage of the towers, since it is next to impossible to resume their work. As a result, the American authorities may make concessions to foreigners, including China, in order to keep the segment in working condition during the crisis, ”Bodrova explained.
According to Anton Pokatovich, China’s investments in the US oil and gas industry may be related to Beijing’s interest in shale production technologies. According to the expert, back in 2019, the republic announced the discovery of large hydrocarbon reserves in the Sichuan Depression. Meanwhile, the extraction of raw materials was complicated by the lack of necessary technologies.
“In the foreseeable future, China will concentrate its efforts on the development of domestic deposits. It can also be assumed that the Chinese oil and gas industry will place an increasing emphasis on gas production. Therefore, Chinese investment in American production may be associated with the search for various technological know-how for applying these approaches to domestic projects, ”the analyst concluded.