Article: United States now holds more oil reserves than Saudi Arabia
Article: US shale oil: Frack count grows, production levelling out
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The Brent and WTI oil prices approached $50/bbl in the first week of June 2016 and remained flat throughout the month. Consequently, operators immediately began adding rigs targeting their most prolific shale areas e.g. Concho and Energen added seven and six rigs in the Permian Basin during June, respectively. This makes June the first month to show signs of recovery in shale rig count over the last two years, with a 5% monthly increase as shown in Figure 1. With higher oil prices expected going forward, it is clear that the rig count has now reached its bottom. However, we expect recovery to be conservative, with several large operators such as EOG, Chesapeake and Devon acting cautiously before increasing rig activity.
As a result of increased rig counts (which signifies increased drilling activity) and decreased DUC wells inventory (due to accelerated completion), shale production is expected to bottom out during the summer months of 2016 and continue with monthly additions towards the end of this year, as shown in Figure 2. US oil production from horizontal wells has been resilient during 2016 with only a 100 kbbl/d decline from January to May.
During H1-2016, drilling activity focused on the core plays with some minor drilling in non-core areas, as companies focused on wells with the best economics and breakeven oil prices below $40/bbl. If the oil price remains at the current level of approximately $50/bbl, shale drilling will continue to be mainly in the core plays. In fact, 70% of the shale drilling activity in North America will be concentrated in the top activity plays, namely Eagle Ford, Bakken, Permian and Niobrara, as shown in Figure 3. With the oil price expected to surpass $50/bbl as early as 2017, drilling activity can potentially start again in the non-core areas.
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