EOG Resources Inc. and Pioneer Natural Resources Co., two of the largest shale-oil producers, are preparing to boost drilling again after oil prices climbed 40 percent in the past seven weeks.
A well pump near Sweetwater, Texas.
EOG Chairman and Chief Executive Officer William Thomas said Tuesday his company will increase drilling as soon as oil prices, which closed above $60 a barrel for the first time this year, stabilize at $65. Pioneer is planning to add drilling rigs starting in July, subject to oil price movements and the sale of other assets.
New drilling now means the companies can add to production in 2016. The statements come a month before the Organization of Petroleum Exporting Countries is scheduled to meet to discuss supply quotas. The price of West Texas Intermediate, a U.S. benchmark, has gained on speculation the oil glut was easing. Drillers cut rigs to a five-year low after prices fell by more than half since June, spurring billions in spending cuts and more than 100,000 industry job losses.
EOG will be “heading into 2016 on a very strong note,” Thomas told investors on a call. EOG plans to boost output in the fourth quarter and double-digit growth could return by 2016.
Other major shale companies are weighing when the time will be right, said Ed Hirs, a lecturer on energy economics at the University of Houston.
“EOG is a tremendous technical company,” said Hirs, who runs his own small oil production firm. “EOG, Pioneer and others have plenty of opportunities. They are looking ahead to the inevitable and are deciding to get ready.”
Prior to today’s comments, Houston-based EOG had slashed spending almost 40 percent from last year’s level, cutting the number of rigs drilling for oil and natural gas from 32 to 18 in two of its three core areas. Oil prices crashed after OPEC decided in November to leave output levels unchanged.
Initially, EOG will grow by completing wells as soon as the third quarter, Thomas said. Shale producers have left thousands of wells essentially half-finished, waiting for prices to rebound before they frack them, according to Bloomberg Intelligence. EOG will make that decision by July.
“They are managing growth,” said Fadel Gheit, an analyst with Oppenheimer & Co. in New York. Prices have rebounded faster than many anticipated and EOG as well as other companies seem to be waiting to make sure the rally holds, he said.