Crude production in the US lower 48 states, excluding the Gulf of Mexico, rebounded to 9.2 million barrels per day in July, as large volumes of curtailed production were turned online, according to Rystad Energy estimates. That’s just 11% below the peak output range of 10.3 million-10.4 million bpd posted in the fourth quarter of last year and the first three months of this year.
Our updated estimate for July suggests that the onshore industry likely delivered a significant monthly addition of 750,000 bpd in production as reactivation of wells ended up more than offsetting the natural decline in fields. That’s even more impressive than the 500,000 bpd jump in June. We estimate that about 80% of this growth in June came from tight oil reactivation, while legacy conventional production increased by 100,000 bpd to 1.5 million bpd as offshore Gulf and Alaska production weakness extended from May.
The accelerated reactivation of curtailed US onshore production has now been confirmed by both state well data for the major producing states and the latest EIA-914 survey released yesterday. Total survey-based US oil production for June came in at 10.4 million bpd, perfectly in line with our latest US Oil & Gas production outlook. Hence, the Energy Information Administration’s Short-Term Energy Outlook for August underestimated nationwide oil output by 700,000 bpd and a significant recalibration of the outlook should be expected in the upcoming September issue.
Horizontal tight wells across the country, the main contributor to Lower 48 production, were subject to material production swings during the curtailment period. For example, even mature pre-2016 horizontal vintages, which produced about 1.2 million bpd in first quarter, lost about 350,000 bpd between March and May. Most volumes were restored by July with pre-2016 vintages recovering to 1.1 million bpd. More curtailed volumes were likely brought back in August and September.
Even new wells that were brought online this year saw severe irregularities in the second quarter compared to the normal new vintage build-up seen in previous years. In the 2016-2019 period, oil production from new wells increased every month during the vintage year, typically reaching a peak in December. Last year’s horizontal vintage was the best in the country's history, delivering 4.5 million bpd of new oil in December. This was more than sufficient to offset the record-high base decline of 3.5 million bpd, for pre-2019 vintages between December 2018 and December 2019. Thus, total horizontal oil production increased by 1 million bpd through 2019.
The evolution of the production build-up is dramatically different for 2020-vintage wells. It started the year on a positive note, delivering a record 1.6 million bpd of oil in March amid strong fracking activity in the first quarter and record-high well performance. As the market downturn kicked in because of the Covid-19 pandemic, a lot of wells fracked in March and April were not put on production as per schedule in the second quarter and some wells that were turned online in first three months of the year were curtailed. As a result, new vintage well productivity declined between April and May – a phenomenon that had never happened in the past and the slope of the build-up curve reduced substantially in June and July. As fracking activity saw a moderate recovery and as new wells were put on production in June and August, the positive trajectory of the build-up curve for the 2020 vintage was restored. However, new wells in the second half of this year would hardly offset the decline coming from a strong production base in the first quarter and we anticipate that 2020 vintage wells will only deliver about 2.6 million bpd of oil in December. This corresponds to a 40% decline compared to the peak oil production for the 2019 vintage and even lower than the peak of 3.15 million bpd from the 2017 vintage. With the first year base decline rate of 3.8 million bpd in 2020, it appears that one should not anticipate a continuous recovery in the lower 48 states. About 9.1 million 9.2 million bpd of output is level likely to be maintained in the second half of the year after factoring in the net impact of base decline, curtailment reactivations and low new well activity.