Despite a slowdown in production growth during the first quarter of 2019, US shale producers remain on track to continue to increase output year-on-year, achieving the goals set in the beginning of 2019. Shale oil and gas production in the United States has been growing steadily over the past years, and this trend is expected to continue in the medium term with total volumes reaching 28.4 million barrels of oil equivalent per day (10.8 million bbl/d light oil, 4.8 million bbl/d NGL and 76.6 bcf/d gas) in 2021. This article addresses the most recent Rystad Energy’s forecast for US tight oil and gas production and capital investments with the focus on the key contributing shale plays.
Figure 1 depicts liquids and gas production and the number of spudded wells from shale formations in the United States from 2006 to 2023. Total shale output has been rapidly increasing, especially since 2010, when horizontal drilling has become a widespread trend, leading to improved economics and productivity of wells. The abrupt oil price collapse in 2014 and continued low oil price environment prevailing well until 2017 has led to production stagnation in the country and even a 7% oil production decline in 2016. Yet, overall the shale industry has been very resilient, able to adjust to a depressed price environment through high grading of acreage and cost and productivity improvements. Last year total production increased by 25% with light oil volumes growing by 32%. In 2019, a 24% growth in light oil is anticipated. As a result, liquids and gas production is expected to stand at 23.2 million boe/d this year with light oil contributing 8.3 million bbl/d. The impressive performance is projected to be achieved even considering a rather conservative oil price environment (the majority of shale companies set targets assuming WTI oil price of $50 per bbl) and increased pressure from shale investors to prioritize returns and cost control over production expansion. Looking into the future, shale production is expected to continue to expand, growing by 9% CAGR in 2020-2023 and averaging 32.2 million boe/d in 2023 (17.9 million bbl/d liquids and 85.4 bcf/d gas). At the same time, oil volumes are anticipated to increase by 11% CAGR during the same time period and stand at 12.4 million bbl/d in 2023.
Although light oil production volumes from US shale continue to grow, the expansion is expected to slow down, with light oil additions declining towards 2023, driven by a flat development in drilling and completion activity, as shown in Figure 1. This year, however, oil additions are projected to stand at 1.62 million bbl/d, consistent with the volumes added last year. In Permian Midland, oil additions are expected to grow relative to 2018. Other major plays are expected to see relatively stable or declining additions this year. The Permian Basin tight oil plays, both on the Delaware and Midland side, show the highest additions since 2016, while the more mature Bakken and Eagle Ford shale plays show stable production profiles.
Gas production growth from US shale is expected to decrease from 9.6 billion cf/d in 2018 to 7.8 billion cf/d in 2019. Large gas additions witnessed in Marcellus and Utica last year are projected to decrease substantially in 2019, with total growth for Marcellus and Utica estimated at 2.1 billion cfpd in 2019, compared to 4.5 billion cf/d added last year. Similarly, Haynesville Shale growth is expected to slow down next year with an average of 1.1 billion cf/d added, roughly half the outstanding additions seen over the last two years (2.3 bcf/d on average per year in 2018 – 2019).
Figure 4 shows total US shale drilling and completion costs from 2011 to 2023, split by the largest shale oil and gas plays. Total investments have been increasing by 20% CAGR in 2011-2014, reaching $162.7 billion at peak in 2014. Following the oil price fall, shale spending collapsed by 42% in 2015 and another 47% in 2016, as shale producers adapted to lower oil price environment by reducing activity on non-core acreages and drilling only the most economic areas. In 2017, the industry entered a period of recovery and drilling and completion costs increased again by 74%, driven by activity acceleration in all major plays. In 2018, we witnessed an additional 38% increase in spending with the total level reaching $120 billion. Among all shale plays, Permian Delaware exhibited the largest growth in investments last year standing at an impressive 67%. At the same time, since last year shale investors started to show more concern about the shale operators’ tendency to overspend, focusing on aggressive growth instead of improving balance sheets. Especially given the prevailing unstable oil price environment, the importance of returns and thus cost discipline has become the priority for the shale industry for the years to come. Therefore, in 2019 we expect a 6% decline in total drilling and completion costs, as shale companies strive to show cost control amid healthy production growth. In the next four years, the level of spending in the US shale industry is projected to remain rather flat growing by 0.7% CAGR with shale operators aiming to spend within cash flow.
US shale production has seen continuous growth since the low in 2016, and is expected to keep growing in the medium term, albeit at a slower rate. By the end of 2019, light oil supply in the US is forecasted to reach 9 million bbl/d. The Permian Basin will be the key contributor to the oil production growth going forward, with stable volumes expected from the more mature shale plays that were leading the growth prior to the oil price crash in 2014. Despite the slowdown in spending seen this year, as companies strive to spend within cash flow, and the corresponding stable drilling and completion activity trend, total US shale volumes are expected to reach 32 million boe/d (12.4 million bbl/d light oil) by 2023.