Posted on 06/09/2015 9:54:34 AM PDT by thackney
Yesterday's Drilling Productivity Report from the EIA better defines the inflection point many in the industry have been waiting for since late-last year. US tight oil production is rolling over, and EIA sees the decline accelerating.
We believe the relationship between the US rig count and US oil production is the most critical in O&G today, for it is the cornerstone of most global trough/recovery scenarios.
By next month, all of the 2015 production gains will be given up per the EIA, and, at this pace, all of 2014's gains (some 1.1mmbpd) could be wiped away by mid-2016. Of course, the big wild cards in the deck are DUCs and potentially the re-frac trend, which could offset some of the new well decline. It's still early, but the inflection trend so far is cause for cautious optimism, for a US oil production response would be supportive of oil prices.
The rig count in the Big 3 Oil plays peaked about 5 months before the production peak - about in-line with expectations. The rig count is down about 52% from peak. Meanwhile, oil production peaked in April, and fell 60bps in May. Through July, a 330bps decline is expected - a material move that should be supportive of oil prices in the near-term.
Importantly, this trajectory suggests that US oil production won't follow the natural gas model, where the production response did not emerge after the rig count decline thanks in large part to associated natural gas supply from rising oil drilling. The oil production trend won't have the offset of "associated" oil.
Now we wait and see if June / July actuals assume the EIA's projected trajectory. Some will point to the production inflection as the end of the shale boom, but for many in the patch, the shale boom ended in January. Exploration is far more capital and labor intensive than production, and the shale oil exploration boom ended when 2015 budgets kicked into gear.
In the following slides, we quantify how basin-by-basin production is trending and also show the natural gas shale analogy, which we believe will be shirked by the US tight oil model during this downturn.
To clarify, no one is predicting the rate to continue that long. It is just a perspective of how fast it is predicted to fall next month.
So, there will be less oil due to far less operating rigs? Kinda Captain Obvious.
So this means prices shooting up next month?
I don’t see prices shooting up anytime in a near future.
Prices “shooting up” will have many more drill rigs operating.
OK, see what you mean. Thanks.
Are some still thinking $45bbl by October?
None that I think are credible.
OK, thanks.
See chart a link:
http://www.eia.gov/forecasts/steo/report/prices.cfm
Notice though the wide spread of “could reasonably happen” spread in prices.
the big wild cards in the deck are DUCs and potentially the re-frac trend, which could offset some of the new well decline.Captain Inobvious will have to explain what DUCs might be. But It’s certainly interesting to think that fraccing tech is improving to the point that it might be profitable to re-frac existing wells . . .
Meet WOC (aka DUC), The World’s New Swing Producer
http://www.oilandgasinvestor.com/blog/meet-woc-aka-duc-worlds-new-swing-producer-787191#p=full
Excellent article, it goes exactly where I was thinking about the potential trigger that will cause the WOC wells to be brought on line. Of course, here in Tulsa, many a wary eye is cast about 40 miles west to Cushing where tank construction continues apace.
WTC up 3.16% and trading above $60.
In situ storage, by almost completing a well.
It means that these producers can sit and wait for higher prices to bring product to market.
I imagine it is easier to almost complete these wells, compared to a conventional deep water GOM well.
So the ND and TX shale producers are the new Arab Sheiks.
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