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December 2021

US private E&Ps now positioned for 550,000 bpd, 4.8 Bcfd growth in 2022

Rystad Energy Press Releases

US gas flaring hit a record low in September, driven by improvements in the Bakken and Permian.  >> Read here

Non-mining oil output in Canada’s top province hits all-time high, shaping its heaviest upstream mix in modern history.  >> Read here

US shale spending set to shake off uncertainty and jump 19% in 2022, topping $83 billion.  >> Read here

Rystad Energy Product Highlights 

• Shale Analytics
With Shale Analytics our clients gain a timely and comprehensive overview of the latest developments and forecasts within the shale sector, including productivity metrics for drilling, completion, fracking, well productivity and well economics, the shale financing with a focus on capital structure and company hedging. Our frequent commentaries provide invaluable analysis of the selected topics. >> Learn more

• ShaleWellCube 
ShaleWellCube provides access to high quality oil, gas and water production data, estimated NGL volumes, and insights into the latest flaring trends. Our near real-time satellite-based oilfield activity monitoring allows clients to get a 360-degree perspective of the market, from drilling and completion operations to production and project design data, all of which can be correlated with well performance.
 >> Learn more

• Shale Intelligence
This report provides users with unique insights into supply and demand of key service segments of the US shale industry. With Shale Intelligence our clients will get quarterly insights, providing the latest updates on market developments with five-year forecasts of specific well services markets within US Shale. Shale Intelligence provides an industry overview of drivers behind drilling and completions activity, detailed analysis, and forecast of the global frac services market, the US frac sand market overview, analysis of the US oilfield water management market as well as an overview of the US stimulation chemicals market. >> Learn more

CONTACT: NAS@rystadenergy.com 

 

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This year will go down in US shale’s history as one where privately held producers dominated onshore drilling activity by reacting promptly to the steadily recovering oil market, outpacing behemoths such as ExxonMobil and Chevron and other top independents that instead kept a tight control on spending with an aim to largely maintain their operations. Even though the number of horizontal rigs operated by private companies rose back to their pre-Covid-19 levels of about 220-230 as early as summer this year, industry participants repeatedly questioned the sub-sector’s ability to make a material contribution to the country’s onshore oil supply growth. Key concern areas were supply chain bottlenecks, cost escalations and the gap in productivity and efficiency versus public players – all together resulting in markets overall downplaying the significance of private operators to the nation’s supply landscape. Empirical data shows that all these arguments do have some basis. Even so, private players current rig count, of about 265-270, is some 75-85% higher than the suggested range of 140-150 required to maintain production. Based on the current rig program, private operators are positioned for a staggering growth in tight oil output of 550,000 barrels per day (bpd) and 4.8 billion cubic feet per day (Bcfd) of shale gas between the fourth quarters of 2021 and 2022.

The sub-group’s rig total was within that maintenance range in March. But unlike their public peers, private operators did not have an unusually large bank of drilled but uncompleted (DUC) wells built up over 2020 and 2021 to fall back on to boost supplies to feed a strengthening market. Many private E&Ps were in a DUC build-up phase through the first half of this year and only from the third quarter did completions jump to levels consistent with the run rate of drilling across most basins. In other words, that meant it was too early to expect an accelerated supply response from private operators in the first half of this year as new inventory had to be built up first. Only from the later part of the third quarter, for oil, and the fourth quarter for natural gas, will supply additions remain consistent, with a significant momentum heading into the first half of 2022, amid robust completions in the final three months of this year. This will likely result in an unusual shape of the nation’s supply growth, with material additions occurring through the winter, as opposed to a typically backloaded growth profile.

Our supply growth outlook implies an acceleration of 100,000 bpd in tight oil following the addition of 450,000 bpd between the fourth quarter of 2020 and the same months this year. On gas, the magnitude of gains is more significant, as private operators added only 2.7 Bcfd between the fourth quarters of last year and this year. Supply chain bottlenecks may result in capping some of the expected growth next year and these risks, particularly when it comes to labor shortage, should not be underestimated. We, however, note that our primary research suggests the horizontal rig count of private operators might potentially increase from 270 to 300 by the end of the first quarter of 2022, ultimately offsetting any downside risks associated with labor shortages and cost escalations. Overall, we believe that the growth potential of 550,000 bpd and 4.8 Bcfd next year already appears to be very tangible.

Private operators significantly outperformed their public peers on the speed of rig count additions in the first half of 2021, reached an outstanding share of about 50% of the horizontal US onshore market this summer. Since then, both private and public producers have followed a similar rig activty trend, as many public independents have accelerated their additions in the fourth quarter to prepare for next year’s completions given the sharp drawdown of the drilled but uncompleted (DUC) well inventory. Hence, at a nationwide level, the share of the horizontal rig market controlled by private operators has stayed relatively flat at 49-50% since the summer months. As of today, all major US oil & gas basins have the highest share of private operators since the early years of the US unconventional industry. Even in the Haynesville, where several largest private producers were acquired this year, the remaining well-established private operators - including Aethon, Rockcliff and Trinity - have managed to increase their share of total activity in recent months.

The Permian Basin hosts the largest number of horizontal private E&P programs today. Private operator activity halted quickly in the second quarter of 2020 during the storage crisis and only seven operators – Endeavor, Mewbourne, CrownQuest, Kaiser-Francis, BTA, Birch and Summit – were running two or more rigs each at the bottom of the previous cycle, in July 2020. The horizontal Permian rig count of these seven well-established producers bottomed out at a combined 17 rigs, whereas all other private operators in the basins operated only 10 rigs at that time. These major private drillers increased rig activity to 40 through the second half of 2020 and the first quarter of 2021 and have been maintaining that run rate of activity since the second quarter of 2021, at par with the pre-Covid-19 peak touched in the first quarter of 2020. Meanwhile, all other smaller private operators have been responsible for the basin’s incremental rig count gains in the most recent months. As of today, other private players are already operating 90-95 rigs in the Permian, which corresponds to a record-high level for the peer group.

The recovery in rig activity in US tight oil plays has not been limited to the Permian. We have recorded 53 private E&Ps in south Texas’ Eagle Ford, the Bakken and Niobrara regions combined in the fourth quarter of this year – who have spudded at least one well during the quarter – compared to 16-17 active operators in the second and third quarters of 2020. That level of activity is comparable to the number of active operators in the fourth quarter of 2019 and the first quarter of 2020, but slightly lower than the average number of active private operators in 2018-2019. The typical size of a private program is also slightly smaller than it was in 2018-2019, as an average private operator drills about 5 wells per quarter today compared to an average of 6.5 wells per quarter in 2018-2019.

The number of new private programs in 2021 will not match the levels seen in the previous growth cycle. Even so, with 22 new programs recorded in the first 11 months of the year, every week when we process new permit and rig filings, we keep seeing company names which have been inactive for years. As many as 74 private programs have been reinstated in 2021 year-to-date – a program is counted as reinstated when an operator drills a new horizontal well in a basin after at least six quarters of no activity – which makes the number of private operators returning to the US onshore oil & gas business comparable to what was previously recorded in 2017, with still two more weeks to go in 2021. The phenomenon is widespread, with nearly all major US oil & gas basins being on track to record a record high number of private operators returning to oil & gas exploration in 2021.

 
 
 

Rystad Energy is an independent energy research and business intelligence company providing data, tools, analytics and consultancy services to the global energy industry. Our products and services cover energy fundamentals and the global and regional upstream, oilfield services and renewable energy industries, tailored to analysts, managers and executives alike. We are headquartered in Oslo, Norway with offices across the globe.

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