Producers eye long road to recovery as Texas begins to thaw

Shale oil producers in the southern U.S. could take at least two weeks to restart the more than 2 million barrels per day (bpd) of crude output that shut down because of cold weather, as frozen pipes and power supply interruptions slow their recovery, sources said.

The winter storm that gripped Texas and much of the country over the past week forced the biggest ever weather-related shutdown in the Permian Basin, cutting 2 to 4 million bpd from nationwide oil output and hitting the roughly 5 million barrels produced each day from top shale producing state Texas especially hard.

The shut in oil production represents 2 to 4% of global supply, so a slow recovery would tighten worldwide crude markets and may bolster prices that already hit a one-year peak earlier this week.

There may be glitches in supply as utilities assess and repair damage, industry sources said.

"I think it will be a while before things get better out in the field," one executive at a Permian producer said, on condition of anonymity.

Typically, oil production can be restarted quickly after cold weather, but the scale of the shutdown is unique, said Jodi Quinnell, research director at energy researcher and consultancy Wood Mackenzie.

"Within the Permian, it's definitely different this time around, partially because of the sheer amount of production taken offline," Quinnell said.

Permian Basin oil production is down 35%, dipping below 3 million barrels a day in output for the first time since 2018, according to Wood Mackenzie data.

Problems in accessing the fields and equipment could slow the recovery, executives at oil companies said.

Some companies that truck equipment and workers into Texas shale basins to repair frozen wells and gathering lines have been unable to access certain roads due to icy conditions, a worker at one Texas trucking company said.

Several midstream companies, including Oryx Midstream, a Permian-based gathering and logistics company, as well as TC Energy's Marketlink pipeline, have declared force majeure as power disruptions impede their ability to receive and pump barrels.

"This situation is a little different, where if you have continued power issues, you can't run pump stations and compressors and things like that," said Ryan Smith, East Daley Capital's research director.

Producers are also grappling with a lot of actual freeze-offs, truck issues and mechanical problems at tank farms, one source at a merchant that works with Permian oil producers said.

"It's not like power comes back on and you flip the basin back on it," the source said, predicting production could be at about 50% on Monday but take a few weeks to be at 100%.

The production decline from wellhead freeze-offs is expected to total 16 to 18 million barrels in February, J.P. Morgan analysts estimated.

Still, producers are unlikely to make major investments to prevent problems like this recurring, analysts and company officials said. Many consider the freeze-off a once-in-a-century event.

"It's a cross benefit analysis. They're thinking, how often does this happen, are we going to deal with this once a decade? It's not really worth it for them to guard against an outlier event," said John Kilduff, partner at Again Capital in New York.

Texas refineries slowly restart after last week's deep freeze

Refineries along the Texas Gulf Coast began rapidly restarting following last week's winter storm that shut down the state's fuel processing and petrochemical industries with the lowest freezing temperatures in a generation.

The freeze knocked out power for millions of Texans and idled nearly a quarter of national refining capacity. The storm's effect on refining rivaled that of 2017's Hurricane Harvey, but also brought the added problems of freezing natural gas and water lines that will make it harder for facilities to restart safely.

The largest U.S. refinery, Motiva Enterprises 607,000 barrel-per-day Port Arthur plant, filed a notice with the Texas Commission on Environmental Quality (TCEQ) of plans to begin a 17-day restart on Monday.

Sources familiar with operations said the refinery must repair water pipes throughout the plant that froze and cracked when temperatures dropped well below freezing a week ago.

Marathon Petroleum Corp's 585,000-bpd Galveston Bay Refinery in Texas City, Texas, restarted the co-generation unit, which produces power and steam, said sources familiar with plant operations. Process lines, fittings and water pipes throughout the refinery need repair, the sources said.

Exxon Mobil Corp began an attempt on Monday at its 560,500-bpd Baytown, Texas, refinery. External power was restored to the plant over the weekend, said sources familiar with plant operations.

Exxon's 369,024-bpd Beaumont refinery also began restarting on Sunday, the company said.

Two refineries were restarting in Corpus Christi, Texas, and a third was making preparations to start-up again.

Valero's 290,000-bpd plant began restarting on Saturday and Flint Hills Resources 338,500-bpd began restart on Sunday, according to filings with the TCEQ.

Citgo said it was preparing to restart its 167,500-bpd Corpus Christi refinery.

Valero is also restarting its 335,000-bpd Port Arthur refinery. The company also restarted the crude distillation unit at its 125,000-bpd Meraux, Louisiana, refinery. (Reporting by Swati Verma in Bengaluru and Erwin Seba in Houston; Editing by David Gregorio)

(Reporting by Devika Krishna Kumar and Laila Kearney in New York; Editing by Caroline Stauffer and Rosalba O'Brien)

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