November 2, 2018
Rystad Energy's base case oil production outlook for DJ Basin in Colorado through 2021 suggests that volumes, which are expected to come from already producing well (brown), DUCs (yellow) and already permitted drilling locations (green) are largely secured and will be affected only marginally if Proposition 112 passes. Hence, existing DUCs and approved permit inventory is sufficient to maintain oil production growth through 2Q20 and will be able to push DJ’s production upwards from 470 thousand bpd in 3Q18 to more than 630,000 bpd 2Q19 without contributions from future permits. Significant production support from existing permit inventory will extend even into 2021 as the current size of inventory suggests that not all permits will be drilled within the initial two-year period and they will have to be renewed to be drilled later. While COGCC does not have full confidence about the exemption for future renewals of permitted locations, their public relations representatives think that anything that’s currently permitted would not be impacted by Proposition 112 in future.
Finally, there are dark and light blue volumes on the chart showing Rystad Energy's base case production forecast for not yet permitted locations. If Proposition 112 fails to find sufficient voter support, we see DJ’s oil production approaching 800,000 bpd by the end of 2021. However, if Proposition 112 passes, we conclude that some operators, whose inventory size is impacted dramatically (e.g. PDC Energy), would not be able to deliver on our base case activity expectations as they run out of remaining locations already in 2H 2020. In addition, with activity migration towards federal lands, where permit processing times are much longer, we will also see gradual decline in the activity as current permit inventory depletes. In such scenario, we see DJ oil production rolling over in early 2021 and falling below the current production level by 2023-2024 as opposed to the continuous gradual growth expected until mid 20s in the base case scenario.
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