US oil and shale output – Feb 2018

Published at 21:01 30 Apr 2018 by . Last edited 15:12 5 Nov 2018.

US crude production rose by 0.26 mb/d m/m and by 1.20 mb/d y/y in February to 10.26 mb/d. We had forecast a m/m increase of 0.27 mb/d. Combined output in Texas and New Mexico (a proxy for the Eagle Ford and Permian) was up by 0.15 mb/d m/m, and 0.84 mb/d y/y, to average 4.6 mb/d, a record high. Gulf of Mexico production jumped by 89 thousand b/d m/m to 1.7 mb/d, just 47 thousand b/d below the record high reached in March 2017. Production growth in other shale basins was more muted than in Texas and New Mexico. Indeed, combined output in North Dakota and Montana (a proxy for the Bakken) was down by 7 thousand b/d m/m, likely driven by the continued impact of freeze-offs but also potentially on limited gas processing capacity forcing operators to dial back completions. Production in Wyoming and Colorado (a proxy for the Niobrara) fell by 6 thousand b/d m/m to 0.65 mb/d, this is the second monthly decline for the region after output grew for six consecutive months. Finally, combined output in Oklahoma and Kansas (a proxy for the Anadarko basin, home of the SCOOP and STACK plays) grew by 1 thousand b/d m/m. The region continues to report volatile m/m production trends, with growth ranging between nil and 28 thousand b/d over the last twelve months. In our view, this is down to the increased multi-pad operations in the region, which involves producers timing clusters of completions with infrastructure rather than completing one well at a time. In this report, the EIA revised up 2017 crude production by 34 thousand b/d on average, taking y/y growth to 0.5 mb/d. The revision was entirely attributed to the Gulf of Mexico, suggesting the EIA had routinely missed a notable chunk of oil production for over a year. Total US liquids production averaged 15.45 mb/d in February, rebounding m/m by 0.48 mb/d from weather-related issues in January and higher y/y by 1.67 mb/d. Crude output rose by 1.20 mb/d mb/d y/y, while NGLs production was up y/y by 0.42 mb/d, led by ethane. We expect m/m production growth to be more limited in March, at 0.12 mb/d, once again led by Permian growth.

As Exxon, Chevron and Conoco divert more capital to onshore operations, production growth is responding in kind. Over Q1 18, Chevron registered an impressive 65% y/y growth from its Permian operations, to 0.1 mboe/d, Conoco’s combined output from the Eagle Ford, Bakken and Permian rose by 20% y/y, and Exxon raised combined Permian and Bakken output by 18%. However, the IOCs were keen to downplay the negative effects of strong production growth on realised prices in the Permian. Exxon is considering an expansion at its Wink Terminal, while Chevron claims to have procured enough pipeline capacity at competitive rates (on Midland to Sealy) to provide it with protection. The outlook on the service side was healthier, however. Strong activity levels allowed Schlumberger and Halliburton to report a 55% y/y uplift in combined revenues across Q1 18, with rising costs in the Permian also helping.

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