US total liquids production averaged 16.06 mb/d in June, up m/m by 0.26 mb/d and higher y/y by 2.16 mb/d. This was slightly above our expectations of 15.95 mb/d, with crude production outperforming our forecast by 0.1 mb/d but NGLs coming in exactly in line. Crude production increased m/m by 0.23 mb/d to 10.68 mb/d, a record high, up y/y by 1.60 mb/d. The m/m increase was driven by a ramp up in Gulf of Mexico (GoM) production after prolonged maintenance, a month later than we had originally forecast. Field data for Q2 18 indicated a strong post-maintenance recovery at the St. Malo field, where output rose to a record 0.1 mb/d by the end of the quarter. Similarly, output at Jack rose to a record high 0.1 mb/d, with combined Jack/St. Malo output at capacity at the end of Q2 18. June also benefited from the start of Shell’s 40 thousand b/d Kaikias tieback, which came online one year earlier than expected, although ramp-up will be gradual. We have revised our 2018 GoM estimates higher by 50 thousand b/d.
Texas and New Mexico (a proxy for the Permian and Eagle Ford) output rose by 0.17 mb/d m/m to 5.1 mb/d, much higher than the previous two months—m/m output growth was subdued at 64 thousand b/d and 25 thousand b/d for April and May respectively. Our model projected 0.1 mb/d of m/m production growth as we expected constraints to have more of an impact on production in the Permian. However, pipeline constraints have definitely caught up with production now as, by end August, Midland differentials were trading $18 below WTI. Our estimates place current pipeline utilisation at 92-95%, effectively at operational capacity on all pipelines evacuating the basin. At these levels, prices in the Permian are dangerously close to $50 crude and flirting with (and in some cases below) producer breakevens, especially given the recent rate of cost inflation. Most producers are hoping for accelerated timeframes on takeaway out of the Permian basin, but we remain sceptical. If prices stay here, producers will be putting more barrels into storage and some production may be at risk as well.
Offsetting some of this growth, Alaskan production fell by 45 thousand b/d as planned summer maintenance began at Prudhoe Bay and at the Alpine and Lisburne fields. Production in Oklahoma and Kansas (a proxy for the Anadarko basin) fell by 4 thousand b/d m/m to average 0.62 mb/d (higher by 79 thousand b/d y/y), having fallen m/m by 12 thousand b/d in April and 2 thousand b/d in May. Growth in the basin continues to be hampered by NGL and gas takeaway constraints. Production in Wyoming and Colorado (a proxy for Niobrara) fell by 26 thousand b/d m/m to 0.65 mb/d, higher by 0.23 mb/d y/y. Output from the Bakken fell m/m by 21 thousand b/d to 1.23 mb/d. The underperformance of these shale basins is driven by NGL and gas takeaway constraints, which are set to remain through at least mid-2019 as well.