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U.S. Production Growth Surges

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Includes: AOIL, BNO, DBO, DRIP, DTO, DWT, GUSH, IEO, NDP, NRGD, NRGO, NRGU, NRGZ, OIL, OILD, OILK, OILU, OILX, OLEM, PXE, SCO, UCO, USAI, USL, USO, USOI, UWT, WTID, WTIU, XOP, YGRN
by: Ron Patterson
Summary

The latest data from the January EIA report shows that US production surged by 203 kb/d in November to reach a new high of 12,879 kb/d.

Since June the US has increased output by an average of 164 kb/d/mth.

For December, the number of DUCs declining slowed to 35 to 6,932.

By Ovi

All of the oil production data for the US states comes from the EIAʼs Petroleum Supply Monthly. In addition, information from other EIA offices is provided to project future US output. At the end, an analysis of a few different EIA reports is undertaken.

The charts below are updated to November 2019 for the 10 largest US oil producing states (>100 kb/d).

The latest data from the January EIA report shows that US production surged by 203 kb/d in November to reach a new high of 12,879 kb/d. Since June the US has increased output by an average of 164 kb/d/mth. Looking forward to December production, the January Monthly Energy Review (MER) estimates US production for December to be 12,861 kb/d, down 14 kb/d from November and shown in red as the last data point.

If the MER is correct for December at 12,861 kb/d, that means that the January 2020 STEO is too high in its output prediction. It estimates December output to be 12,967 kb/d, 106 kb/d too high.

This chart shows the onshore L48 production. What is of interest here is the November increment. It is only 101 kb/d higher than October, 50% of the total US November increment.

US Oil Production by State

Listed above are the 10 states with production greater than 100 kb/d. These 10 account for 10,804 kb/d (83.8%) of total US production of 12,879 kb/d in November. Note that the October output was revised up from 12,655 kb/d last month to 12,676 kb/d. The main difference between the US total increment of 203 kb/d and the top 10 increment of 129 kb/d is an output increase of 91 kb/d from the GOM.

Texas production grew in November by 65 kb/d to 5,329 kb/d. Note that Texas production is now larger than OPEC's second largest producer, Iraq.

North Dakota oil production was marginally down by 3 kb/d in November to 1,479 kb/d. From the low of December 2016 to November 2019, production has increased by 539 kb/d for an average increase of 15 kb/d/mth. There are no signs of plateauing in North Dakota output at this time. Since August the number of wells completed each month has almost remained constant as it wandered between 97 and 104, with 100 completed in November.

This chart shows the rig count for North Dakota. Note how the minimum rig count occurred in May 2016 while the low in production occurred in December 2016 in the previous chart. At the same time, the increase in rig count which started in May 2016 saw increasing output starting seven months later.

From July 2016 to November 2019, the average number of operating rigs was 52.74 with the majority each month being within +/- 5. The maximum was 60 and the minimum 45 for a limited time. Note that starting in December 2016, production rose fairly steadily even though the weekly rig count was fairly steady at 52.74. Using the North Dakota well count from November 2016 to 2019 and using 52.74 for the average number of rigs gives a rig average productivity of 1.3 wells per rig per month.

Note that over the same time frame, Shale Profile shows an increase of 3,007 wells for the Bakken while the North Dakota data shows 2,592 producing wells. However, it needs to be noted that the Bakken extends into Montana.

Output in New Mexico continues to make new highs to 1,063 kb/d in November, an increase of 59 kb/d from October. The gain probably comes from the Wolfcamp and Spraberry basins which are part of the Permian and situated in both NM and Texas. The combined output of these two basins in November was 63 kb/d according to the LTO report.

This chart shows the steady rise in output from the Wolfcamp basin. The November gain was 47 kb/d to 1,599 kb/d. The January LTO report projects December output to reach 1,648 kb/d.

November production was down by 17 kb/d to 575 kb/d. The graph shows indications of peaking or plateauing in Louisiana. The high occurred in April 2019 at a rate of 619 kb/d. There has been a loss of drilling interest in Oklahoma due to the complex geology that stymied hopes for a "Permian Jr".

Colorado production was up by 7 kb/d in November to 562 kb/d. This slowing could be the result of new environmental regulations. It may take a few more months to see if the regulations have slowed drilling and output.

Alaska output increased by 10 kb/d in November to 485 kb/d and reached the downtrend line, which is showing decline rate of 1.35 kb/d/mth or 16.2 kb/d/yr. However, this downtrend is expected to slow in 2020 and 2021. Going forward, two new projects are scheduled for 2020 and 2021 which will add 20 kb/d and 40 kb/d, respectively, according to the Frontiersman. Both of these increments will be offset by the yearly decline noted above. A more recent article in the Frontiersman states that increased development spending will add significantly to Alaska's output in 2022 and 2026.

"A final investment decision in Pikka is expected in late 2020, which means spending for this project will be in the $3.38 billion estimate, but most will come in following years. Pikka will see initial production beginning in 2022 and full production at 120,000 b/d in 2024. Willow's investment decision will come later, with production beginning in 2025 or 2026, ConocoPhillips has said."

California continues its steady decline. It was down another 6 kb/d in November to 425 kb/d.

Wyoming continues to increase its output and reached a new high of 293 kb/d in October with a minimal increase of 2 kb/d. It continues to benefit from the northern portion of the Niobrara LTO basin being situated in Wyoming.

There was little change in Louisiana output for November, up by 2 kb/d, and no indication of a change in trend. Production has been essentially flat at slightly over 120 kb/d since January 2019.

Utah's output is holding steady at slightly over 100 kb/d due to its new conventional field but is giving indications of starting a new slow decline.

The GOM increased its output in November by 91 kb/d from 1,904 kb/d to 1,995 kb/d. For 2020, the STEO is projecting steady output close to 2,000 kb/d.

Above are the top 10 US oil producing states along with GOM plotted on the same scale to show the relevance of the GOM. Note the chart starts at 2,500 kb/d and Texas output is 5,329 kb/d. The GOM output is 1,995 kb/d or 37.5% of Texas.

DUCs

This chart shows the number of DUCs in the five primary oil producing basins. For December, the number of DUCs declining slowed to 35 to 6,932. Does the slowing in decline imply that there are not many more worthwhile DUCs to complete? The DUCs peaked in May 2019 and have been slowly declining. The largest decline in DUCs occurred in the Anadarko basin, 54, while Permian and Bakken DUCs increased by 14 and 18 respectively in December.

The number of wells drilled in the five major oil producing basins peaked in October 2018 at 1349 and then began a slow decline. However, the decline in the drilled wells accelerated starting in August 2019 to an average rate of 52 wells per month. In the meantime, completions began to recover in December 2018 and peaked in August 2019, 10 months later, before beginning to roll over. The gap between drilled and completed wells was 35 in December.

This chart shows the completed and drilled wells in the Permian. The trend is similar to the one shown in the above chart. The Permian drilled wells also peaked in October 2018 and the completions peaked 10 months later and then began to drop. Note that in December more wells were drilled than completed.

Updating EIA's Different Oil Growth Perspectives

Last month reports from three different EIA offices that collect and publish extensive data on the U.S. oil producing industry were compared since they estimate future output. These three differing future perspectives are updated to their latest reporting dates.

1) Drilling Productivity Report (DPR)

The Drilling Productivity Report (DPR) uses recent data on the total number of drilling rigs in operation along with estimates of drilling productivity and estimated changes in production from existing oil wells to provide estimated changes in oil production for the five key tight oil regions.

The projected output increase for all tight oil basins for February 2020 is 21.5 kb/d. Also note that the DPR's projected monthly net increase has been getting smaller and less volatile since August 2019.

This chart is placed here for comparison with the chart below

This chart shows the difference between the monthly production growth and the monthly decline in the first chart of this section. A linear fit was modeled through the September 2019 to February 2020 data since there has been a steady decline in net monthly production since October 2019. As occurred last month, the January data point fell on the trend line, but the February 2020 data point has diverged from the line and is indicating a longer time to get to a point where production and decline are balanced.

If the decrease in the Net Change were to continue at the rate indicted by the difference between January and February, there would be no net increase in production from the LTO basins by mid April 2020.

When comparing the above chart with the previous completed wells chart, note the similarity in the pattern and changes in direction, especially after January 2019. The total number of well completions in the five major LTO oil basins is shown with the maximum number occurring in August. Two months later, October, the net change in monthly production peaked as reported in the DPR and then began to fall. This time gap appears to vanish in November. There was a drop of 236 completions from October to December, from 1,182 to 946. Notice how there is a similar large drop in the net change in production from October to December. While the majority appeared in November, this could be revised. Is this a coincidence or is there some logic to explain the seeming connection between completions and net production. To provide more insight for the answer, the correlation between completions and net change in production will continue to be tracked in future posts.

Another feature to notice is the number of completions from March to September was roughly constant at close to 1,200 per month. Over that same time period, the net monthly increase in output wandered around 115 kb/d. The 946 completions in December are yielding a net increase in production of 55 kb/d according to the DPR. This indicates that close to 900 completions per month will be required to maintain constant output. This assumes the quality of the wells stays the same. Also, as more wells are drilled, an increase in completions would be required to offset the decline from the newer well.

There is some logic in thinking that well completions and net changes in production should be correlated since a completed well adds new production. If correct, the DPR may be getting planned completion/frac schedules from fracking companies for the next few months ahead and is making its projections based on that information. Fracking companies must have work schedules to plan how to deploy their resources for upcoming months.

To further look into the question of completions and production, above is a chart comparing monthly well completions in the Permian with the monthly new well additions from Shale Profile. Shale Profile data is updated to October. What is striking is how there are fewer new monthly producing wells than completions. The difference between the two ranges from zero to 220, with 80 being a more typical difference. Why are there fewer new well additions than completions? Is the difference due to old wells being shut down? Are some completed wells of such low quality that they are not tied into the pipe gathering system and just added to the DUC count? Puzzling and looking for some answers or clarification.

In the previous post, delonghorn provided the following info on well completions.

"After a well is fracked, there are number of things that happen before you get much oil or gas. First, any other wells on the same pad are usually fracked, sometimes they also wait on neighboring wells. The well site has to be cleared, and production facilities, installed. A gas line may have to be laid and tied in. Finally when they are ready to go, they open the well up and produce lots of frack fluids. There is not a lot of oil or gas until the big part of the frack flows back, and different operators have their own procedures. It can take up to a couple of months flow back before the well comes in strong."

As a final comparison, above are charts for completed EF wells and EF production. On average, the completion of close to 185 wells per month after July 2018 has kept EF output slightly above 1.2 Mb/d and essentially no net growth in 2019.

So in summary, there appears to be a close relationship between completed wells and monthly production change. Further, it is speculated/possible that the DPR has access to the fracking companies completion/frac plans and uses this information to make projections for a couple of future months. Also we need some explanation for the difference in well completions and new well additions as shown in the Permian chart above.

2) Light Tight Oil (LTO) Report

The LTO database provides information only on LTO production from seven tight oil basins and a few smaller ones.

Output from all LTO basins in December was 8,252 kb/d, an increase of 81 kb/d from 8,171 kb/d in November. The average monthly increase from January 2019 to December 2019 is 96.94 kb/d/mth and is 37% lower than 2018. However, the average rate over the last two months has slowed to 83.3 kb/d/mth.

This chart shows the monthly addition to LTO output and is similar to the DPR chart above. Production in December was little changed from November. The current December LTO report confirms the DPR trend up to December 2019.

The Permian is the largest contributor to US tight oil growth. As can be seen in this chart, the average growth rate for 2019 is lower than 2018. While the average monthly growth rate for 2018 was 97.61 kb/d/mth, the average rate for 2019 is lower at 68.45 kb/d/mth. However, in this case, averages are deceptive. In last month's post, the Permian LTO data indicated that starting in September, the Permian output growth was 100 kb/d/mth. However, the December report provides updated data that indicates the average growth rate over the last three months of 2019 slowed to 88 kb/d/mth.

3) Short-Term Energy Outlook (STEO) Report

The STEO provides projections for the next 13-24 months for C + C and NGPLs production. The January report presents EIA's first oil output projections out to December 2021.

This chart compares the December 2019 STEO projection with January 2020. While the October to December 2019 STEO projections were showing successively lower output for 2020, the January 2020 reverses that trend by showing a significant increase in production for 2020 relative to the December STEO. However, overall there are indications of slowing.

Below are the yearly increases for C + C starting with 2019, i.e. December 2018 to December 2019.

  • 2019 increase: 940 kb/d
  • 2020 increase: 520 kb/d
  • 2021 increase: 540 kb/d

So the 2020 and 2021 output increases are slightly more than half of the 2019 increase. What is even more surprising are the production increments for January 2020 and December 2020 that were added to the December 2019 STEO estimates shown in the chart. The increments are 100 kb/d and 200 kb/d for January 2020 and December 2020 respectively. The question that arises is "What information was provided to the STEO/EIA between December 2019 and January 2020 that generated these significant increases in output for 2020.

In a Financial Times article in August 2019, the following statements were made by executives of Chevron (NYSE:CVX) and Exxon (NYSE:XOM).

"Chevron achieved record output of 3.08m barrels of oil equivalent per day in second quarter, 9 per cent higher than the same quarter a year ago. Its Permian oil production increased 50 per cent to 421,000 b/d and should reach 900,000 b/d by 2023, said Jay Johnson, executive vice-president of upstream for the California-based company.

While Exxon's total production rose 7 per cent year-on-year to 3.9m boe/d, its Permian production grew by nearly 90 per cent to an average of 274,000 boe/d, said Neil Hansen, vice-president of investor relations. He predicted Exxon's volume from the basin was on its way to 1m b/d by 2024."

Essentially Chevron plans on adding 100 kb/d/yr over the next four years. If Exxon does the same or more, that is a possible explanation for the big output jump in the January STEO over December. It needs to be noted that in the comments portion of the previous OPEC post, there were many views on the performance of the currently drilled wells of these two companies.

So was the EIA/STEO able to confirm or update the plans of these two companies over the holidays to enable them to make such a significant change to their 2020 forecast? If true, will we start to see an increase in the rig counts for these two companies in the Permian in 2020 or will there be some other explanation?

In this chart, the GOM output was removed from the previous chart to obtain a better idea of what is projected to happen to onshore oil production in the L48 states. The 2020 and 2021 increments in C + C are 460 kb/d and 560 kb/d respectively. Comparing these onshore numbers with those above, 2020 is lower by 60 kb/d and 2021 higher 20 kb/d. In essence the STEO is projecting higher drilling activity going into 2021.

While this post is focused on C + C output, we should look at NGPLs to see what is happening in that sector since both OPEC and the IEA base their US production outlook on C + C + NGPLs. The annual NGPL increments for 2020 and 2021 are 230 kb/yr and 210 kb/yr.

This chart shows total oil output from the L48 states. For 2020 and 2021, it shows that output will increase by 750 kb/d and 800 kb/d respectively. Alaska has virtually no impact on these increments.

It is interesting to compare the EIA 2020 oil output increment with the increment that OPEC and the IEA are reporting. The January OPEC report shows an increase of 1,100 kb/d from Q4-19 to Q4-20. The November IEA Oil Market Report shows an increase of 1,240 kb/d from Q2-19 to Q2-20. The OPEC and IEA output increments are 350 kb/d and 490 kb/d higher than the EIA increments respectively. This discrepancy should result in either higher OPEC output to meet demand or a larger world inventory draw or a combination of both.

Original post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.