Spending by Lower 48 oil and natural gas producers is set to rise by 19.4% next year to $83.4 billion from an expected $69.8 billion in 2021, according to new analysis by Rystad Energy. 

shale spending

Service price inflation is expected to account for $9.2 billion of the spending growth, with increased activity contributing $8.6 billion, said the Oslo-based consultancy. The spending increase should be partially offset by $4.2 billion in expected efficiency gains driven mainly by further adoption of simultaneous fracturing, aka simul-fracking, technology, researchers said. 

Total spending in 2022, despite growing year/year, would still be well below the $119.8 billion figure forecast by Rystad in November 2019 before the pandemic hit. Researchers also cautioned that the impacts of the Omicron coronavirus variant on spending remain to be seen.

“Oil and gas activity and upstream spending in U.S. land has been exposed to significant volatility in the last two years,” said Rystad’s Artem Abramov, head of Shale Research. “Aggressive strategies from private operators in the U.S. shale patch have driven spending this year, but we anticipate significant growth in 2022 from public and private operators alike.”

Total capital expenditures in the Lower 48 segment have risen by an estimated 16% this year versus 2020, researchers said, driven mainly by an uptick in activity by privately held producers. These firms “have already felt the impact of cost inflation this year,” the Rystad team said. 

Publicly traded independents “largely maintained” their Lower 48 budgets this year versus full-year 2020, “with a modest increase in the weighted-average well activity index (two-thirds of completion count and one-third of drilled well count),” researchers said. 

Somewhat higher activity was offset by structural efficiency gains and lower service costs behind actual drilling and completion (D&C) operations, according to the Rystad team. 

“While the latter might sound counterintuitive from the perspective of significant spot rate inflation in most service segments throughout 2021, it should be noted that there was an opposite trend throughout 2020, which allowed large independents to lock in cheaper service rates in early 2021 compared to what was behind their D&C spending in 2020.” 

So far this year, spending in the Permian Basin has risen by 23%, with Haynesville Shale up 24%, both outpacing the national average growth rate.

The Niobrara formation in Colorado “saw an even steeper increase in spending in 2021 on a percentage basis, albeit starting from a particularly low base after the massive collapse last year,” Rystad analysts said.

The Appalachian Basin and Eagle Ford Shale, meanwhile, “have experienced only minor growth in 2021, with spending rising between 3% and 6% compared with last year.”

Researchers added that, “While the Eagle Ford has seen a healthy recovery in rig count during 2021,” its full-year spending growth numbers were dragged down by a sluggish drawdown of drilled but uncompleted wells, “especially when compared to the Permian…”

Spending in the Bakken Shale and Anadarko Basin, meanwhile, has declined by between 7% and 4% from last year.

For 2022, spending in the Permian is forecast to grow by 17% versus 2021, “slightly less than the national average as other basins are catching up,” researchers said. 

Rystad expects spending in the Bakken to grow by 19%, in line with the national average.

Spending growth in the Eagle Ford, Niobrara and Anadarko regions, meanwhile, is expected to outpace the national average “due to the rig activity expansion observed in recent months, which provides some momentum to the increase in the running rate of” fracturing activity in 2022, according to Rystad.

As for the gassy plays, the consultancy expects a 15% spending increase in Appalachia and a 10% increase in the Haynesville.

However, Appalachia supply “remains constrained by the takeaway capacity situation,” researchers said.