After a slight dip in August due to the effects of Hurricane Isaac, US oil production growth revived in September, higher y/y by 1.095 mb/d, with total liquids production now just shy of the 10 mb/d mark, at 9.808 mb/d (see Figure 1). The rate of growth was almost double that of August (574 thousand b/d), and higher than the year-to-date average of 0.876 mb/d. Crude oil production was up sharply, to 6.468 mb/d, the highest levels since May 1998, and a y/y growth of 0.888 mb/d, although part of the strength in the growth rate was due to a very weak base in September last year as the aftermaths of Hurricane Irene resulted in production being shut in through late August and early September. NGL volumes continued to climb, higher y/y by 0.287 mb/d at 2.458 mb/d. Biofuels production, however, was lower y/y by 0.08 mb/d, with September output at 0.882 mb/d, the lowest level this year.
Within the different regions, the continued growth in tight-oils output boosted US Midwest and Gulf Coast output once again. US Midwest production scaled new highs, reaching 1.179 mb/d, higher y/y by 0.307 mb/d, supported by record high North Dakotan oil output at 0.729 mb/d, of which Bakken output stood at a record high of 0.662 mb/d. The Gulf Coast saw a large rebound in growth m/m as offshore production that was shut in due to Hurricane Isaac over August returned, with output rising to its second highest levels of 3.740 mb/d, higher y/y by 0.617 mb/d. Texas oil production, in particular Eagle Ford, continued to rise sharply, supporting overall Gulf Coast output, with preliminary output at 1.445 mb/d in September. Permian shale production is also on the rise, with the current dislocation in the Midland WTI values once again highlighting the lack of takeaway capacity relative to production growth. It is only after the Longhorn pipeline reversal in Q1 next year that we expect this dislocation to ease.
Despite a slowdown in the pace of oil drilling (see Figures 25 and 26), rig counts remain at elevated levels, with efficiency gains offsetting any declines seen in the number of rigs. We expect growth in US oil production to continue strongly, led by shale plays (see Figures 27-29), although the pace of growth should ease next year due to a higher base in 2012. The Mississippian Lime, in particular, has attracted a lot of attention lately, as the Lime is shallower than Eagle Ford and Bakken, resulting in smaller drilling rigs and cheaper proppants, thereby yielding the highest returns currently across all major plays for the US independents. Drilling and completion costs range between $3 and $3.5 million in the Mississippian Lime, relative to $7 and $10 million per well in Bakken and Eagle Ford.