F1: US LOWER 48 STATES (EXCL. GULF OF MEXICO)
OIL PRODUCTION: SHOR T- TERM OUTLOOK
Source: NASWellCube Premium, Rystad Energy research and analysis
Dec ’ 15 Mar ’ 16 Jun ’ 16 Sep ’ 16 Dec ’ 16 Mar ’ 17 Jun ’ 17 Sep ’ 17 Dec ’ 17
US OIL PRODUCTION HAS GAINED SIGNIFICANT MOMENTUM
– LIMITED DOWNSIDE RISK IN THE SHORT-TERM
Looking at the recent evolution of oil production in the Lower 48 states (excl. Gulf
of Mexico), Rystad Energy observes a continuous expansion, with a 430 MBbld
growth from December 2016 to May 2017. Even though late-2016 production
levels were adversely exposed to winter storms in several states, the growth from
the average level in 4Q 2016 to May 2017 is still significant, around 340 MBbld.
The majority of shale-dedicated operators were able to achieve oil production
levels around the high-end of guidance in Q1 2017 or beat it on several occasions.
Despite growing concerns about service cost inflation in the most active basins,
completion activity is set for a steep expansion throughout the remainder of 2017.
US Lower 48 oil production is set to expand by an additional 390 MBbld from May
2017 to December 2017 assuming a WTI price of 50 USD/bbl.
The recovery in rig counts has been outpacing the growth in completion activity
since 2H 2016, resulting in a strong build-up of new high-quality inventory of drilled
uncompleted wells (DUCs). Should the prices collapse to 40 or even 30 USD/bbl
level, a major part of these DUCs can still be completed commercially given that
drilling costs are sunk. Therefore, a drastic downward shift in the market conditions
will not lead to a rapid collapse of the U.S. oil production. No more than 500 MBbld
of December 2017 volumes are at risk in the 30 USD/bbl scenario.
“If the prices go down to 30 USD/bbl and we assume that operators behave
rationally, we should observe relatively quick adjustment of activity, which will
result in a temporary contraction of output with stabilization in 4Q at the level
100 MBbld lower than the current output as base production gets more mature,”
said Artem Abramov, vice president of analysis at Rystad Energy. “In reality, history
tells us that many operators will rely on hedging gains or simply outspend more,
so short-term evolution of supply in the 30 USD/bbl world might end up much
closer to the rational 40 or even 50 USD/bbl scenarios.”
IHS: US NATURAL GAS PRODUCTION FALLS AGAIN IN APRIL
Lower- 48 US natural gas production averaged just 70. 2 billion cubic feet per day
(Bcf/d) during April 2017—the lowest level in two months—but higher than production
levels at the start of the year, according to analysis from IHS Markit.
Texas, which in the past has been a
leader in US natural gas production,
along with the Gulf of Mexico, experienced sharp production declines in both
March and April, IHS Markit said, recording the state’s lowest production levels
in nearly 10 years (since August 2007).
Texas production dropped 0.1 Bcf/d in
April after dropping 0.3 Bcf/d in March,
averaging below 16 Bcf/d. Gulf of Mexico
natural gas production averaged slightly
more than 3 Bcf/d in April.
“While natural gas production averages for the Lower- 48 were down in April
by three percent compared to April 2016,
the biggest surprise was the sharp declines in Texas and Gulf of Mexico production, which we’ve not seen since
September 2008, when Hurricanes Gustav and Ike wreaked havoc on offshore
platforms,” said Jack Weixel, vice president for analytics at PointLogic Energy.
(PointLogic is a business unit of IHS
Markit, which tracks US production levels
on a daily basis across 92 producing areas
in the lower- 48 states.). “Producers in the
Gulf have recently shifted focus to deeper offshore drilling targeted at oil plays
with lower associated gas production.”
For 2017 to-date, Weixel said lower- 48
gas production has averaged more than
70 Bcf/d, or 3.5% ( 2. 4 Bcf/d) lower than
the same period in 2016. April 2017 production was 0.2% (0.2 Bcf/d) below
March 2017 levels, and nearly 3% ( 2. 1
Bcf/d) lower than April 2016. Northeast
production continues to inch higher—
approaching 23 Bcf/d, which constitutes
nearly 33% of total US lower- 48 production. Key producing areas in the Southeast US have remained flat compared to
levels recorded early this year.
“We see prices rising for natural gas,
but the market is still sluggish in responding with new production, so the same
dismal level of production persists for
months on end,” Weixel said. “The treadmill has gotten steeper to replace existing production which is in decline, particularly in shale producing areas. So the
rig count is going up, but production is
still catching up.”