American oil: Why everyone wants to drink from the well

The U.S. is becoming an increasingly dominant player in the global oil industry, and according to the International Energy Agency (IEA), this trend will continue, with the Paris-based organization forecasting the U.S. will overtake Russia to become the world’s largest oil producer by 2023.

Royal Dutch Shell (NYSE: RDS.A), the Netherlands-based oil behemoth, may be considering increasing its exposure to U.S. oil assets even as the company moves to ‘simplify’ its portfolio. According to Sky News, Shell will partner with Blackstone for a joint takeover of BHP Billiton’s U.S. oil assets for $10 billion, with Blackstone providing additional financing power.

BHP purchased the unconventional assets for almost $20 billion, but now they have put the assets up for sale due to pressure from an activist investor. Banking sources told Sky News that BHP will likely receive several offers for these oil assets.

The U.S. shale oil boom has resulted in a new supply of low-cost, high-quality oil, and BHP is looking to shed a number of U.S. assets, including fields in the Permian basin near Midland, Texas. According to Andrew Lebow, a senior partner at Commodity Research Group, Permian basin assets are about as prime real estate as you could have in the U.S. when it comes to oil assets.

He likened them to, “Park Avenue, in terms of New York real estate.”

Shell has been adjusting its asset base as part of an overall strategy of simplification. In the fourth quarter of 2017, Shell divested billions of dollars of assets, including UK North Sea assets for $3.8 billion and Woodside for $2.7 billion.

The IEA report, released earlier in the week, said that U.S. crude production could reach a record of 12.1 million barrels a day in 2023, up from 10.6 million a day this year.

When it comes to the oil market, “five year projections are always difficult,” Lebow said, adding that, “much will depend upon prices.”

When it comes to Shell’s rumored interest in the BHP assets, he noted that, “Since the acreage for sale is contiguous to Shell's I'm assuming there will be some cost savings to Shell as the industry continues to attempt to drive costs lower.”