Rystad Energy finds that total US horizontal shale oil production has stabilized in September/October 2016, around 4 million barrels per day.
To remind, the WTI oil price dropped 75% from the highs in June 2014, to the trough in January 2016. The number of spudded wells in US Shale dropped 40% from nearly 21,500 in 2014 to 12,900 in 2015. It is expected that drilling activity in 2016 will end up below 6,500 wells. US shale oil production, however, continued to increase month-on-month through the year in 2014. Production peaked only in March 2015, before total oil production started to decline. Figure 1 shows that North American shale liquid production grew nearly 1.16 million barrels per day in 2015. In fact, we observe that the North American shale industry was capable of annual additions of 1.3-1.7 million barrels per day in 2012-2014, which was unsustainably high for global market balances without any acting swing producer in the market.
Oil prices drive shale activity and thus production, but with a lag. Activity responded relatively quickly to the downturn in oil prices; the number of spudded wells peaked in July 2014, one month after the oil price. The production, however, actually increased for another nine months after oil prices started to drop. The lagged response in shale production, relative to the drop in oil prices and drilling activity (number of spudded wells), occurred because the number of completed wells did not start to fall until January 2015. The reasons that completion activity responded with a lag, include a logistical lead-time between drilling and completion, E&P companies’ annual budgets, contract commitments and the fact that drilling costs are sunk. Moreover, the activity level in 2H 2014 was much higher than the required activity level to keep production flat month by month and production therefore increased.
At the end of 2014, there was a requirement for 850-900 new wells per month in order to keep the production flat. The balancing number has decreased to 450 wells, due to improved well performances and natural deceleration of the base decline from already producing wells as a result of the drop in activity. In September/October 2016, the number of well start-ups has stabilized at the current balancing level of around 450 wells per month. Total US horizontal shale oil production has therefore now stabilized in September/October 2016, producing around 4 million barrels per day.
In Figure 2, we show the evolution of the US onshore active rig count from January 2014 through October 2016, against the front month WTI futures price as a reference. We split rig count series into the rigs drilling horizontal oil wells (key metric for the US shale oil drilling activity); non-horizontal oil rigs (conventional oil drilling and limited vertical shale drilling in Permian Basin) and rigs exploring gas reservoirs. The horizontal oil rig count has increased by 45% or 111 rigs from the low-point in May 2016 through end-October, driven almost entirely by the Permian Basin, where close to 70 rigs were added during this period. Acceleration in activity remains modest outside of the Permian Basin and SCOOP/STACK plays. We observe that outside of the Permian Basin, operators remain hesitant in the short-term to rush into new drilling contracts.
Figure 3 shows the monthly US light oil production from horizontal wells, split by shale play. We find that oil production growth from the Permian Delaware and Permian Midland plays has continued through the downturn. We also observe slower decline and stabilization in the other main shale oil plays, which also contributes to the stabilization of the total US shale oil production in the recent two months.