In America’s largest oilfield, whir of activity confounds OPEC

As oilfield workers for Lilis Energy Inc (O:LLEX) threaded together drill pipes one recent morning in the Permian Basin, a bulldozer cleared sagebrush to make way for the company’s fifth well since January.

Lilis aims to expand production sevenfold this year in America’s most active oilfield.

The whir of activity is all the more impressive after the small firm nearly collapsed in late 2015 – amid unrestrained production from the Organization of the Petroleum Exporting Countries (OPEC). As per-barrel prices plummeted, Lilis piled on debt and struggled to pay workers.

Now – with prices higher after a November OPEC decision to cut output – Lilis can’t grow fast enough.

Such resurrections are common these days in the Permian, which stretches across West Texas and eastern New Mexico. They tell the story of the U.S. shale resurgence and the quandary it poses for OPEC as it struggles to tame a global glut.

Surging U.S. production has stalled OPEC’s effort to cut supply. Inventories in industrialized nations totaled 3.05 billion barrels in February – about 330 million barrels above the five-year average, according to the International Energy Agency.

The Permian boom will be high on the agenda as OPEC oil ministers begin gathering in Vienna ahead of a May 25 policy meeting to decide whether to extend output cuts.

In the long term, too much U.S. output could spur OPEC to open the spigots again – setting off another price war – but for now its member nations’ need for revenue makes that unlikely.

On Monday, the world’s top two oil producers – OPEC heavyweight Saudi Arabia and Russia, a non-OPEC nation – said they had agreed in principle on the need to continue output cuts for an additional nine months, through March 2018.

That would extend the initial agreement, which took effect in January and reduced production by 1.2 barrels per day (bpd) from OPEC nations and another 600,000 bpd from non-OPEC producers, including Russia.

The pledge to extend cuts marked an evolution in the thinking of Saudi Arabia Oil Minister Khalid al-Falih – in response to surging U.S. output.

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