OPEC spent the better part of the recent oil market downturn working hard to stamp out an emerging rival: the U.S. shale sector. However, instead of crushing this budding industry, the market crash made oil companies focused on drilling America's shale formations even stronger. Because of that, shale appears poised to keep stealing market share from OPEC and other producers over the next decade, according to a recent report by the group of oil-producing nations.
Drilling down into OPEC's latest oil market report
OPEC's latest World Oil Outlook detailed its view on supply and demand over the next decade. The report projects that oil production from non-OPEC nations will rise 8.6 million barrels per day (BPD) by 2023, when it will average 66.1 million BPD, which is slightly higher than its outlook last year. Driving that increase will be the U.S. shale sector. In OPEC's view, "the strongest annual increases are seen in the near term, in which total U.S. tight oil increases by an average of 1.4 million barrels a day" annually through 2020. Overall, OPEC sees America's shale output rising from 7.4 million BPD last year up to 13.4 million BPD by 2023 when growth will slow down until production tops out at around 16 million BPD by the late 2020s, at which time it will account for 25% of all oil produced outside of OPEC.
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OPEC eventually expects U.S. shale output to start heading in reverse, as it's projected to decline to an average of 12.1 million BPD by 2040. As that happens, demand for OPEC's oil should rise, as it's estimating that the market will need an additional 10.5 million BPD from OPEC by 2040, boosting its market share by 2% to 36%. However, OPEC's overall conclusion was that "on the supply side, the key theme is the sustained recovery and significant growth in US tight oil production."
These companies are leading America's oil revival
One of the leaders of America's oil revival is EOG Resources (EOG -0.18%). The company was one of the early movers in the Eagle Ford shale, where it's currently the largest producer. In addition, the company has built up large positions in the Bakken shale, Permian Basin, and Power River Basin. Overall, EOG Resources controls enough land to drill another 9,500 highly lucrative and productive wells that could produce as much as 970,00 barrels of oil equivalent (BOE) apiece. With returns on those wells more than of 100% at $60 oil, EOG can grow its U.S. oil output at a 25% CAGR at that oil price.
Another important leader of America's oil resurgence has been Continental Resources (CLR), which was an early mover in developing the Bakken. Since 2010, the company has grown its production at a 27% CAGR, boosting it from less than 50,000 BOE/D up to a projected 315,000 to 325,000 BOE/D by the end of this year. Continental Resources expects to grow its output another 15% to 20% next year as it continues drilling not only in the Bakken but the STACK/SCOOP plays of Oklahoma, which also hold a bounty of oil and gas resources. Those growth engines position Continental Resources to expand its output rapidly in the coming years while generating a gusher of excess cash flow in the process.
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A third shale-focused leader of America's oil revival is Pioneer Natural Resources (PXD -0.13%), which is the largest producer in the Midland Basin side of the Permian. The company currently has a jaw-dropping 20,000 remaining drilling locations, which can fuel high-return growth in the decade ahead. In Pioneer Natural Resources' view, it can grow its output from this region at a 20% CAGR over the next decade. That puts it on pace to produce an average of 1 million BPD by 2026, including more than 700,000 BPD of crude oil.
While America's oil giants ExxonMobil (XOM 0.23%) and Chevron (CVX 1.04%) have been late to the shale party, that's beginning to change as both see the Permian as a key growth driver in the future. In Exxon's case, the oil giant expects its production in the Permian to grow fivefold by 2025 when it should average more than 800,000 BPD. Meanwhile, Chevron holds an estimated 11.2 billion BOE of resources in the Permian, which positions it to grow its output in the region from around 200,000 BOE/D up to more than 600,000 BOE/D by 2022.
The golden age of American oil is upon us
America is becoming a dominant force in the oil industry thanks to its abundant shale resources, putting the country on track to expand output quickly over the next decade. That production growth, when combined with improving oil prices, could generate a gusher of profits for American oil companies. That's why investors should seriously consider adding at least one U.S. oil stock to their portfolio so that they, too, may profit as the country's growth engine continues to rev up.
