The U.S. shale industry is set to achieve a significant milestone in 2021: If WTI futures continue their strong run and average at $60 per barrel this year and natural gas and NGL prices remain steady, producers can expect a record-high hydrocarbon revenue of $195 billion before factoring in hedges, a Rystad Energy analysis shows. The previous record of $191 billion was set in 2019.
The estimate includes hydrocarbon sales from all tight oil horizontal wells in the Permian, Eagle Ford, Bakken, Niobrara and Anadarko regions. The Permian Basin alone is set to generate a pre-hedge $110 billion in hydrocarbon sales from tight oil activity this year, compared to $91 billion in 2019.
However, corporate cash flows from operations may not reach a record before 2022. This is because more than $10 billion worth of revenue is going to be absorbed by significant hedging losses in 2021.
While hydrocarbon sales, cash from operations and EBITDA for tight oil producers are all testing new record highs in the $60 per barrel WTI environment, capital expenditure is not growing exponentially as producers remain committed to maintaining operational discipline.
“From the upstream cash flow perspective, we see reinvestment rates falling to 57% in the Permian and to 46% in other oil regions this year. Corporate reinvestment rates are generally expected to be in the 60-70% range this year due to debt servicing and hedging losses,“ said Artem Abramov, head of shale research at Rystad Energy.