July U.S. Oil Production Growth Slows
Summary
- U.S. July production increased by 31 kb/d to 11,307 kb/d from June only because June was revised down from 11,307 kb/d in the August report to 11,276 kb/d in this report.
- From March to July, production increased by 147 kb/d or 36.8 kb/d/mth on average, down from 49 kb/d/mth in the previous report. July production is still lower than May’s output of 11,334 kb/d.
- The September STEO report forecast US July output would be 11,347 kb/d, a reasonable forecast, high by just 40 kb/d. August is forecast to drop due to hurricane Ida.
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A guest post by Ovi
All of the oil (C + C) production data for the US state charts comes from the EIAʼ’s Petroleum Supply monthly PSM. After the production charts, an analysis of three EIA monthly reports that project future production is provided. The charts below are updated to July 2021 for the 10 largest US oil producing states.
U.S. July production increased by 31 kb/d to 11,307 kb/d from June only because June was revised down from 11,307 kb/d in the August report to 11,276 kb/d in this report. From March to July, production increased by 147 kb/d or 36.8 kb/d/mth on average, down from 49 kb/d/mth in the previous report. July production is still lower than May’s output of 11,334 kb/d.
The September STEO report forecast US July output would be 11,347 kb/d, a reasonable forecast, high by just 40 kb/d. August is forecast to drop due to Hurricane Ida.
In the onshore lower 48, July production increased by 35 kb/d to 9,082 kb/d and is 5 kb/d higher than May which was 9,077 kb/d, red graph.
Listed above are the 10 states with the largest US production. These 10 accounted for 80.4% of US production out of a total production of 11,307 kb/d in July 2021.
On an MoM basis, the largest increases came from New Mexico and Texas, both with 28 kb/d. The combined gain from Texas and New Mexico was offset by Alaska’s drop of 60 kb/d due to summer maintenance.
Texas production increased by 28 kb/d in July to 4,810 kb/d. In the EIA’s September report, June’s output was revised down by 9 kb/d from 4,791 kb/d to 4,782 kb/d. Note that Texas production decreased for two consecutive months, May and June and is still lower than April which produced 4,837 kb/d.
In July there were close to 203 oil rigs in operation in Texas. By the week of October 1, 226 were operating and production is slowly beginning to increase.
July’s New Mexico production set another new record and increased by 28 kb/d to 1,295 kb/d. The increase can be attributed to New Mexico’s Permian which is favoured over North Dakota, where higher production costs have curbed profits.
New Mexico had 75 rigs operating in the Permian in July and they increased to 83 in the week of October 1.
According to the EIA, July’s output was 1,055 kb/d, a decrease of 9 kb/d from June.
Data for the Bakken from the North Dakota Oil and gas Division indicates a much larger drop in July. According to the ND O&G division, output dropped by 55 kb/d in July to 1,037 kb/d. See the DPR section further down.
Note that output for all of North Dakota for July was 1,078 kb/d according to the ND O&G division, a drop of 55.7 kb/d from June. Not clear why the EIA reports lower output than North Dakota for July.
Coloradoʼs July output was unchanged at 390 kb/d.
Alaskaʼs July output decreased by 60 kb/d to 380 kb/d due to maintenance.
Oklahoma’s output in July declined by 12 kb/d to 380 kb/d.
For the week ending October 1, 39 rigs were operating in Oklahoma. From the end of May to the end of July, the rig count increased from 28 to 30. Oklahoma’s increasing the rig count is not offsetting the decline rate.
Difficult to explain increasing rigs and decreasing production
Californiaʼs slow output decline continued in July. Its production decreased by 2 kb/d to 358 kb/d.
Wyoming’s production in July increased by 3 kb/d to 232 kb/d. Wyoming had 3 oil rigs operating in May and they increased to 17 by late September.
July’s production increased by 2 kb/d to 100 kb/d. Ten oil rigs were operational in July and were unchanged at 10 by the fourth week of September.
Louisiana’s output was flat at 95 kb/d.
Production from the GOM increased in July by 56 kb/d to 1,845kb/d. If the GOM was a state, its production would rank second behind Texas.
The GOM increase is relatively large because June’s output in the September report was revised down from 1,825 kb/d in the August report to 1,789 kb/d. In other words 36 kb/d of the 56 kb/d are due to the revision.
The September STEO projection for the GOM output has been added to this chart and projects output to be 1,836 kb/d in December 2022, little changed from the previous August report. However due to Hurricane Ida, August, September and October output have been revised down drastically.
1) Short-Term Energy Outlook
The STEO provides projections for the next 13-24 months for US C + C and NGPLs production. The September 2021 report presents EIAʼs updated oil output and price projections to December 2022.
There has been a major revision in the September STEO relative to the August STEO due to Hurricane Ida which struck Louisiana. While U.S. May and June production are essentially flat at slightly over 11,300 kb/d, August and September are forecast to plunge.
The July forecast output of 11,347 kb/d turned out to be 11,307 kb/d.
September is projected to hit a low of 10,757 kb/d due to Hurricane Ida. The weekly estimates for September issued by the EIA give an average of 10,600 kb/d.
The December 2022 output has also been revised down by 57 kb/d from 12,231 kb/d to 12,174 kb/d. The expected monthly increase in US production from October 2021 to December 2022 is now 68.1 kb/d/mth, down from 72.8 kb/d/mth last month. It is still not clear where this increase will come from. This monthly rate, if correct, is less than half of the rate in 2017 to 2018 and is music in OPEC’s ears.
The September STEO output projection for the L48 states is very similar in shape, but lower to the one provided in the July report. The output decrease forecast in the September report is roughly 130 kb/d from late 2021 to December 2022.
Similarly for the lower 48, the September projection for December 2021 is 110 kb/d lower while December 2022 is 130 kb/d lower.
The September 2021 STEO oil price forecast shows a steady decline from the peak in July, $72.49, to $59 in December 2022 and is little changed from the August report. The big change occurred in moving from the June report to August report.
The November WTI contract settled at $75.88 on October 1, $7 higher than the EIA projection of $69.00.
Front month WTI settled price. Previous recent high, October 3/18, $76.41.
This chart shows the STEO’s September forecast for OPEC crude output to December 2022. OPEC’s output is projected to increase from April 2020 to December 2020 by close to 3,400 kb/d.
For August 2021, EIA forecast production to be 26,775 kb/d. Actual production as reported by OPEC was 26,762 kb/d. Amazingly accurate.
In July, OPEC + announced they will add 400 kb/d/mth from August to December for a total of 2,000 kb/d. Of the 2,000 kb/d, OPEC will add 1,712 kb/d according to the EIA. The EIA’s projected OPEC monthly increases for August to December are, 65, 575, 425, 329, and 318 kb/d, respectively.
OPEC’s production for the second half of 2022 is projected to be flat and close to 250 kb/d lower than OPEC’s output on January 2020, just prior to the onset of the pandemic.
This chart shows the historical supply/demand situation up to August 2021 and after that, the EIA’s forecast out to December 2022. After the supply surplus from February to June of 2020, world oil supply was intentionally reduced by OPEC and its partners. The US also reduced its output but the reduction was related more to the low price of oil.
From April 2022 to November 2022, the STEO is forecasting an average surplus of close to 610 kb/d.
2) Drilling Productivity Report
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 principal tight oil regions. The following charts are updated to October 2021.
Above is the total oil production from the 7 DPR basins that the EIA tracks. Note that the DPR production includes both LTO oil and oil from conventional fields
The DPR is projecting output for October 2021 to increase by 67 kb/d over September to 8,135 kb/d. From March to September, output in the DPR is forecast to increase by 298 kb/d or close to 42.5 kb/d/mth and appears to be accelerating.
The September output in the August SPR report was revised down from 8,085 kb/d to 8,068 kb/d in the September DPR report.
Permian output in October 2021 is projected to be 4,826 kb/d, up by 53 kb/d from September. From March to October production increased by 331 kb/d or approximately 47.3 kb/d/mth. At this rate, Permian production will exceed the March 2020 peak of 4,898 kb/d in December.
During July, 263 wells were drilled and 393 were completed. The completed wells added 286 kb/d to the forecast July output. The decline was 238 kb/d which resulted in a net increase of 48 kb/d. If no DUCs were completed, output would have been close to 191 kb/d. (263/393*286 = 191).
This would have resulted in a decline of 47 kb/d rather than the 48 kb/d increase. Note that this is just a one month estimate. As time goes on and fewer wells are drilled and completed, the decline rate would also drop. The point being made here is that it’s the completion of the extra DUCs that is increasing production.
At some point more drilling will be required as the number of Prime/Sweet DUCs diminishes.
Shale profile has an excellent long-term projection for the Permian.Permian Oil & Gas Production Data | Update Through June 2021
The forecast for the Eagle Ford basin has shown a dropping but slowing output for six consecutive months. Output is expected to remain unchanged in October at 1,053 kk/d.
In July, 57 wells were drilled and 101 were completed. The completion of 44 DUCs was required just to hold output flat. In July, EF had 912 DUCs remaining. How many of those are dead DUCs, 1/2? Anybody willing to venture a guess?
The DPR forecasts Bakken output in October to be 1,144 kb/d, an increase of 5 kb/d from September.
Bakken data from the North Dakota Oil and Gas Division looks different. See below
Output dropped by 55 kb/d in July to 1,037 kb/d. Only 14 producing wells were added in July instead of the more typical 150 to 200.
Output in the Niobrara reached a new low in August 2021, 570 kb/d. However, September and October are forecast to increase.
The Niobrara is spread over Wyoming and Colorado. In June, 7 oil rigs were operating in the Niobrara. By September, they had increased to 12.
In these five primarily oil basins, DUCs are being completed at an average rate of close to 270 DUCs/mth. In total 243 were completed in July, according to the EIA. In the Permian, the completion rate is close to 135 DUCs per month. In July, 130 were completed in the Permian.
The monthly completion of DUCs accounts for the increase in production in the Permian and the other oil basins.
3) LIGHT TIGHT OIL (LTO) REPORT
The LTO database provides information on LTO production from seven tight oil basins and a few smaller ones. The September report projects the tight oil production to August 2021.
August’s LTO output is expected to increase by 42 kb/d to 7,460 kb/d.
In the September LTO report, July’s forecast output was increased from 7,305 to 7,418 kb/d, an increase of 113 kb/d. It appears that the early estimates are always on the low side. The red markers represent LTO output as reported in the August report.
Permian LTO output in August is projected to increase to 4,279 kb/d, an increase of 58 kb/d. Production in the Permian continues to rise at an average rate of 60 kb/d/mth since April. At this rate, it could almost equal the March 20 high of 4,319 kb/d by September.
It should be noted that Permian DUCs are being completed at an average rate of close to 135 DUCs per month and contribute to the rising production.
The Bakken’s August output declined by 3 kb/d to 1,113 kb/d.
The Eagle Ford basin is expected to produce 962 kb/d in August, a decrease of 5 kb/d from July.
Conventional oil output in the On-shore L48 is expected to decrease in August by 6 kb/d to 1,691 kb/d. This estimate is based on a combination of the August LTO output and the September STEO report that has a projection for the US on-shore L48 output for August 2021.
In the September LTO report, LTO output was revised up by close to 100 kb/d. This revised output resulted in a decrease in conventional oil output. The July conventional output of 1,794 kb/d in the August report has been revised down by 127 kb/d to 1,697 kb/d in the September LTO report.
4) Rigs and Fracs
Since the end of August to the end of September, the US added 18 oil rigs for an average rate of 4.5/wk. Of the 18, 5 were added in New Mexico, 8 in Oklahoma, 13 in Texas and 6 in New Mexico. Six were decommissioned in Louisiana due to Hurricane Ida, and 1 each in Ohio and Utah.
Since the week of July 23, frac spreads were not being added at the previous rate of approximately 17 spreads per month due to hurricanes. However, for the past few weeks, frac additions have been back to the previous rate of closer to 17/mth. Note that these 262 frac spreads include both gas and oil spreads, whereas the rigs are strictly oil rigs.
This chart shows how Frac spreads are added in proportion to rigs. Over the last three weeks, Frac spread additions are back to the previous rate of roughly 2 Frac spreads for every 3 rigs.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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