US total liquids production averaged 17.14 mb/d in August, up m/m by 0.59 mb/d and higher y/y by nearly 3 mb/d. This was higher than our expectations (+0.1 mb/d) and the Street’s, including EIA’s STEO (+0.22 mb/d m/m), with crude production outperforming expectations by 0.30 mb/d. Crude production increased m/m by 0.42 mb/d to 11.35 mb/d, another record high, up y/y by 2.10 mb/d. The m/m increase was driven by a large increase in Texas, up 0.13 mb/d m/m to 4.58 mb/d, as well as continued increases in Gulf of Mexico (GoM) production, which rose by 74 thousand b/d m/m to 1.92 mb/d. This is the third month of higher production out of GoM after maintenance season, with production up by over 0.40 mb/d since May due to new tiebacks, accelerated project timelines, and efficiencies from maintenance. Shell’s Kaikias tieback came online an entire year early this June, and now BP has started work on an expansion of their Thunderhorse facility four months ahead of plan. The expansion will add roughly 30 thousand b/d of production, which is ramping up in October.
Onshore production also surprised to the upside as Texas and New Mexico (a proxy for the Permian and Eagle Ford) output rose by a massive 0.18 mb/d m/m to 5.30 mb/d—the fastest m/m growth we have seen since March. In contrast, major service companies have said growth has been slowing in the region (perhaps referring to September) and have warned of additional slowdowns in Q4 18. While a slowdown in the Permian has been expected, service companies mentioned slower completions in other basins as well, noting specifically the DJ as well as the Eagle Ford. However, Colorado was one area that also came in higher than our expectations, up by 40 thousand b/d m/m to 0.48 mb/d. This pop in production came after stalled growth since the start of the year, with July output only 1 thousand b/d higher than December 2017. Output in Wyoming and Colorado (a proxy for Niobrara) grew by 56 thousand b/d m/m to 0.72 mb/d.
Production in Oklahoma and Kansas (a proxy for the Anadarko basin) rose by 24 thousand b/d m/m to average 0.66 mb/d (higher by 0.93 mb/d y/y). Bakken output continues to rise, up m/m by 22 thousand b/d to 1.29 mb/d, even as we approach more stringent flaring regulation set for 1 Nov. ONEOK mentioned in their earnings that flaring restrictions will be set based on gross gas production and gas captured. Also of note—those producers that have come in low will receive credits, and new wells are exempt from the restrictions for the first 60 days of production. This could help explain why we have not seen more cautious action in the basin. With production continuing to ramp up, more and more focus has been on takeaway capacity in the area. Expectations are for multiple expansions to come online between now and the end of 2019 to facilitate growth in the region (See US Department of Energy, 31 October 2018).