According to industry executives, the recent jump in price volatility will motivate more companies to consolidate, especially in the Permian—the star among the shale plays.
Prices are already excessively volatile with the continuing pandemic, the absence of evidence that mass vaccination is creating herd immunity, and the emergence of the new Omicron variant, which has rendered the herd immunity question moot.
“I’m worried that it may get too high, above $100 ,” Pioneer Natural Resources’ Scott Sheffield told Reuters in an interview at the World Petroleum Congress.
Consolidation is one way to achieve stability, as you would have fewer players in a field and, as a consequence, fewer differing views on what the right level of oil production is.
“Consolidation of our industry is a force that is not going to slow down,” said Tim Leach, former chief executive of Concho Resources, which Conoco acquired earlier this year.
These benefits include leveraging economies of scale and becoming more competitive even at lower oil prices, although few seem to be expecting lower prices anytime soon.
However, half of the increased expenditure will be due to cost inflation, which will account for as much as $9.2 billion of the combined 2022 spending bill.
Company valuations are also on the rise along with the price of oil, and with the Permian still considered the sweetest spot in the shale patch, drillers with exposure to it would be the ones with the biggest valuation gains.
The splurge approach could be costly but give buyers access to a greater resource base at a time when there’s worry about underinvestment in new oil production, despite the green push.