Widespread inflation strains US shale budgets

Widespread inflation strains US shale budgets

New York, 16 May (Argus) — Surging inflation across the US shale sector is putting pressure on producers' capital expenditure (capex) budgets, just as more output is needed to counter a global supply squeeze exacerbated by the impact of sanctions on Russia.

Little in the way of respite is expected from rising costs for everything from steel to labour in coming months, shale operators warned analysts during first-quarter earnings calls over the past few weeks. With many publicly traded operators focused on improving investor returns rather than expanding drilling, these cost pressures will act as a further brake on growth. Alongside supply-chain bottlenecks, the weight of inflation will make any belated attempts to respond to the White House's repeated calls for higher production even harder to achieve, helping to keep oil prices elevated as a result.

Companies that did not already have plans in place at the start of the year to boost output — such as locking in supplies and equipment — face an uphill battle, Occidental Petroleum chief executive Vicki Hollub says. Attempting to step up activity at this late stage could jeopardise investor returns. "There has never been a time that companies have been trying as hard as they