Article: Canada Shale - Explaining the challenges in the low commodity environment
Sona Mlada, Senior Analyst
Article: The prize of drilling: Greatest shale wells of the year 2015
Per Magnus Nysveen, Senior Partner & Head of Analysis
RYSTAD ENERGY PRODUCT HIGHLIGHTS
Rystad Energy offers a wide product range of North American shale products (NASAnalysis).
NASCube:Database that provides US and Canada shale gas and tight oil plays data for 380+ companies and 90+ shale plays and sub-plays. Data derives from Rystad Energy’s global and complete upstream database UCube, with additional information regarding acreage and well data.
NASWellCube:Collection of official US & CA well data, covering over 220,000 horizontal and fracked vertical wells, with complete US shale coverage, and including well attributes, monthly production rates at well level, reported and calculated initial production rates, well configuration parameters and industry trends such as pad drilling and refractured wells. In January 2016, Rystad Energy released the NASWellCube Premium module. The premium version in addition includes short-term activity and production forecasts, well cost and breakeven price analysis, estimated 3-stream production series and estimated drilling days for each well.
NASReport: Consists of a monthly insight, short term and medium term forecasts for both production and spending for key North American Shale plays and operators, a deep-dive into well data and completion trends. The NASReport is now electronically delivered on a monthly basis.
NASMaps: Geological, company acreage and well location maps. Maps are available as pdf-layers and GIS files with embedded information for import to GIS software.
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Oil prices have started to rebound from the lowest point in February 2016; however, the current price level is still far from its peak back in 2014. It may also take several years to see that historical high oil price again. As oil prices start to recover, the question is how offshore and shale will respond.
Figure 1 shows the production from global offshore and shale projects split by liquids and gas. The production forecast is based on Rystad Energy’s base case oil price assumptions. As we can see, the total global offshore production is approximately three times higher than the global shale production. The low commodity prices lowered the production growth for both offshore and shale projects during 2015. Rystad Energy estimates the 2016 production for offshore projects will remain at the same level as in 2015, while the shale production will decrease slightly, mainly due to oil output reductions. From 2017 to 2020, production is estimated to grow at an average annual growth rate of 1.8% for offshore projects and 10% for shale projects.
It is also important to understand the capital investments required for the production forecast mentioned above. Figure 2 shows historical and expected investment levels for these two supply sources from 2014 to 2020. Both offshore and shale projects have a large reduction in investments for 2016, due to continuing heavy reductions in capital budgets from oil and gas companies, in an effort to cope with low oil prices. For the offshore projects, Rystad Energy estimates the year-over-year reduction in investments to be 18% in 2016 and 17% in 2015. On the shale side, many shale companies have projected their 2016 capital budgets based on a 30 $/bbl oil price scenario, which resulted in an extremely low investment level for the year. The year-over-year capital investment change for shale is -40% for 2015 and -42% for 2016.
We believe that as the oil prices begin to recover, the investment levels for both sources will start to increase. From 2017 to 2020, Rystad Energy estimates that the capital investment for offshore projects will increase at an average annual growth rate of 11%, whereas shale projects will grow at a much higher rate of 33%.
Based on breakeven oil price analysis for unsanctioned projects, shale is still a competitive source of supply. Figure 3 shows the average breakeven oil prices for unsanctioned projects. The average Brent breakeven price for shale projects is approximately 71 $/bbl. For offshore projects, only the offshore shelf has a lower breakeven price than shale. Oil sands have the highest breakeven price of around 98 $/bbl.
It is clear that compared to offshore projects, shale projects have a great advantage by having a lower breakeven oil price and the ability to make swift adjustments in response to fluctuations in oil prices. This means that when oil prices start to increase, operators that have both offshore and shale projects would prefer to ramp up the activity in their shale projects first.