US oil and shale output – Feb 2019

Published at 20:20 30 Apr 2019 by

US crude production fell for the second month in a row, down m/m by 0.19 mb/d in February to 11.68 mb/d, although production was up y/y by 1.43 mb/d. The February m/m change was lower than our projection of flat for the month, as Gulf of Mexico (GoM) production came in lower than expected (-0.19 mb/d m/m to 1.72 mb/d). This was partially offset by increases across Texas and New Mexico, higher m/m by 87 thousand b/d to 5.73 mb/d after falling in January by 67 thousand b/d m/m. Wyoming and Colorado production (a proxy for the Niobrara) was lower m/m for the second month in a row, down by 9 thousand b/d to 0.75 mb/d, alongside Oklahoma and Kansas production (a proxy for the Anadarko basin) which was lower by 6 thousand b/d to 0.67 mb/d. North Dakota and Montana production (a proxy for the Bakken) was also down m/m by 66 thousand b/d, driven primarily by cold weather.

Thunder Horse maintenance conducted over a good portion of the month helped reduce GoM production significantly, while cold weather blasts and flooding reduced production from the Williston Basin, seen in lower Pony Express throughput until recently. Permian production grew moderately after oil prices recovered for February trading, although February differentials remained muted until March trading—and after Enterprise began line fill on its 0.2 mb/d NGL conversion over two months earlier than expected. March production likely recovered further as frac spread counts rose in the Permian. North American crude production as a whole continued to grow lighter, with over 24% of the country, except Alaska, over 45 API degrees.

Merger and acquisition activity in the oil patch suddenly surged this month after deal volume hit a 10-year low in Q1 19. Chevron announced a $33 billion purchase of Anadarko Petroleum on 12 April, citing a 75-mile-wide combined corridor across the Delaware Basin, complementary GoM assets and enterprise-wide cost synergies as primary justifications for the merger. Occidental also continued its own months-long chase for Anadarko with a $38 billion bid. While this may have proved difficult with its smaller balance sheet, it may triumph now that Warren Buffet’s Berkshire Hathaway committed $10 billion to the producer in return for 100 thousand shares of preferred stock to help fund the acquisition. While energy equities surged briefly on the prospects of further acquisitions, overall energy benchmark gains are now flat vs 12 April vs a 1.1% gain in the S&P 500 as investors demand capital discipline. Earnings season has just begun, but early indications point to lower Capex. Q1 19 Capex for Exxon came in 12% lower q/q (+60% y/y), Chevron was 23% lower q/q (flat y/y) and Eni came in down by 18% q/q (-20% y/y). Continental did not adjust full-year Capex but touted its higher efficiency, noting that they were able to drill and complete more wells with the same number of rigs and completion crews.

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