OPINION: US shale output looks set for a morale-boosting bounce during the next six months after a difficult end to 2018.

A host of operators have set new targets for this year, raising hopes of double-digit production growth.

Optimism has been in shorter supply in recent times as pipeline logjams, financing blips and lower crude prices depressed sentiment.

The last quarter of 2018 was particularly tough with evidence of a major slowdown in exploration, employment and rig use.

But even with bad weather adding to problems for shale operators in the first three months of this year, Oslo-based consultancy Rystad Energy believes US shale output could be up 16% — 1.2 million barrels per day higher — this year over last.

Companies operating in the Bakken and Marcellus shale, such as Enerplus, said at first quarter results that they were expecting a 10% increase this year.

Denver-based SRC Energy has just raised its output target by 7% for 2019 while Devon Energy and Concho Resources have also both signalled higher volumes.

Investors are said to be still wary about lending to smaller independents

But there is still nervousness in some quarters. Baker Hughes has reported the overall US oil and gas rig count is still lower than a year ago, for the seventh week in a row.

Service giants Schlumberger and Halliburton have just had their credit ratings downgraded as the slowdown eats into margins, and investors are said to be still wary about lending to smaller independents.

This is one factor that encouraged giants such as ExxonMobil, Chevron and Shell to take such big profiles in the Permian basin.

The recent downturn also helped trigger a wave of mergers and acquisitions, leading up to Occidental Petroleum's $56 million bid for Anadarko Petroleum.

That in turn has put the names of some of the world’s biggest investors, such as Warren Buffett (who helped finance the Oxy move on Anadarko) on to the shale slate.

There is also a growing realisation that economies of scale can further cut costs associated with drilling in the Permian basin.

Some of the Rystad optimism, of course, can be attributed to Brent crude rising from $50 to $70 per barrel since the turn of the year.

One of the major plus points for the US shale industry has been its ability to quickly scale up production in response to positive price signals.

The cost of crude has been affected by tougher US sanctions on Iran and Venezuela, plus rising optimism that the US trade war with China might finally be resolved.

Upward pressure on prices has also been retained by Saudi Arabia, Russia and Opec production quotas.

Pushing against this is output from the US shale plays, which helped boost national output by 2.2 million bpd in 2018.

The International Energy Agency has predicted that 70% of the total increase in global oil capacity over the next five years could come from the “second wave of the US shale revolution”.

Yet only last autumn, Schlumberger chief executive Paal Kibsgaard was questioning whether the productivity of shale wells had been generally overestimated.

And Pioneer Natural Resources has started talking about cutting a quarter of its workforce to reduce overheads.

Shale operators are under pressure to increase profits as well as production, but the fracking environment looks less fractious.

(This is an Upstream opinion article.)

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OPINION: Pressure eases for US shale sector