October US liquids production surged by 0.44 mb/d m/m, and 1.3 mb/d y/y, to 14.74 mb/d as NGLs output surged by 0.28 mb/d m/m (to 3.97 mb/d) and crude by 0.17 mb/d (to 9.64 mb/d). NGLs gains were driven by ethane output growing by 0.25 mb/d m/m to a record 1.5 mb/d. Crude production growth could have been significantly higher had it not been for 0.2 mb/d of unplanned outages in the Gulf of Mexico following Hurricane Nate. Crude production growth exceeded our expectations by a large 0.15 mb/d (we had expected flat to slightly lower crude output as onshore gains were expected to be offset by GoM declines). The outperformance was driven by combined Texas and New Mexico output (a proxy for the Permian and Eagle Ford), which surged by 0.23 mb/d m/m (outstripping our combined Permian and Eagle Ford forecast of 0.1 mb/d of m/m growth). The onshore growth was further bolstered by gains in the Bakken (83 thousand b/d m/m vs our expectation of 20 thousand b/d), Anadarko basin (24 thousand b/d m/m vs our expectation of flat growth), and the Rockies (15 thousand b/d m/m, in line with our forecasts). Even Alaskan output rose, by 25 thousand b/d m/m, following a period of planned maintenance. The source of the outperformance is difficult to pin down, with well data only partially complete through to September. Still, leading-edge well results have been promising, with IP rates rising in most basins in recent months, in line with higher pad completion activity.
Activity levels remained strong across November and December, with 8 rigs added in the Delaware, 3 in the Eagle Ford and 2 in the Midland basins. Furthermore, completion data from the Texas RRC suggests 492 wells were completed in the state in November (up from 391 completions in October). The shortage of frac crews, which was previously holding back growth, also appears to have been alleviated recently with the ratio of DUCs to new wells falling in the Permian in October and November. Indeed, Midland DUCs were down for the first time in 11 months in October. We expect these trends to continue through 2018 and US output will be further bolstered by an increase in offshore activity. In the GoM, a combination of new projects (the 80 thousand b/d Stampede and 75 thousand b/d Big Foot) alongside the continued development of tieback opportunities should deliver 64 thousand b/d of growth in 2018.
Despite the rhetoric of financial prudence gaining traction through the course of 2017, we have yet to see clear evidence that producers are doing anything more than paying lip service to their investor base, given the sharp underperformance of US E&P equities relative to oil prices and broader equity indices. For us, the rally in flat price more or less ensures that companies will deliver on production growth, and it would take draconian reversals in spending and company strategies to alter that.