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US slate growth slows



Welcome to the Delaying Issue by Oil Markets Daily!

EIA today released its latest report on drilling productivity. We deliberately waited a few months before updating our model as we wanted the DPR to receive more revised data from the RRP 914. In fact, we saw a massive overhaul of the production of Eagle Ford and Perm in the DPR.

There are Two Overwhelming Conclusions View the latest data:

  1. US slate growth will continue to be strong in 2019, but weaker than the growth we saw in 2018.
  2. By 2020, US slate growth will slow significantly with the same number of holes and equal productivity.

Strong US slate growth is expected in 2019 as well.

We see a good productivity shutdown at Permian, Eagle Ford and Bakken, while Niobrara and Anadarko are recording a good productivity decline. This has lowered the productivity of the entire shale oil well:



Source: EIA, HFI Research

Contrary to what we saw in 2018, when the productivity of shale oil drilling increased steadily for much of the year to the fourth quarter, we see a sustained decline in productivity. Since May, the productivity of the wells has increased only by ~ 5% over the previous year.

As a result, US shale needs to grow at the same pace so it can maintain year-over-year growth.



Source: EIA, HFI Research

However, as we have seen in previous drill completions this year, it is only slightly higher.

So we can combine both productivity and well completions with the current increase in gross production capacity from US shale oil basins:



Source: EIA, HFI Research

At present capacity, the increase in gross shale oil production is ~ 1.4 mb / d. But as you will see in this graph below, growth slows down:



Source: EIA, HFI Research

When you break down US shale growth after pelvic productivity, you also see a significant loss of productivity.



Bakken



Eagle Ford



Anadarko



Niobrara



2019 is all about the perm …

The future prospects of US shale oil production will be entirely in the hands of the Perm Basin. For the year 2019, 71% of the y-o-y growth will come from the Permian. The Gulf of Mexico already has a maximum between 1.9 MB / day and 2 MB / day and will decrease in the future. Bakken and Eagle Ford will deliver a maximum of 150,000 to 200,000 b / d growth in the future. As the growth of permian production slows, overall growth in US oil production slows:



Source: EIA, HFI Research Estimated



Source: EIA, HFI Research Estimated

For example, for adoption from 2019 out of 6,000 wells are completed each year with the same well productivity. If well productivity continues to improve, absolute growth will be higher, but the slowdown in growth will remain the same.

However, this is due to isolated cases such as the decline in Tier 1 acreage and the parent-child relationship problem. It is far more likely that well productivity will decrease by 2 to 3% in the future. That's how growth would look if productivity drops 2% each year:



Source: EIA, HFI Research Estimation

Conclusion

We expect strong growth in US shale oil production this year. We forecast that US oil production will end at ~ 13.1 mb / d by the end of the year. The biggest part of production growth in H2 2019 will come from the Perm increase in take-away capacity. In every slate basin outside the Permian, DUCs begin to fall. Productivity also comes to a standstill in all basins.

From our point of view, it is clear that the growth of US shale oil will slow down in the future. Depending on how many holes have been completed this year, this growth will vary.

Energy investors should take note of this!

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Disclosure: I / we have no positions in the above stocks and no plans to open positions within the next 72 hours. I wrote this article myself and it expresses my own opinion. I can not get any compensation for it (except from Seeking Alpha). I have no business relationship with a company whose shares are mentioned in this article.


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