August 28, 2015
Publisher: Oil & Gas Financial Journal - August edition
North American shale production has stopped growing, as a result of lower activity. Preliminary capital budgets for the year indicated total shale expenditure of ~100 BUSD, down from ~155 BUSD in 2014. As of the second quarter, several major companies have further reduced their capital budget, including the top three producers: Chesapeake, Devon, and EOG. Considering the budget revisions as well as short term cost reductions, the current estimate of 2015 expenditure is now ~$95 BUSD.
The decline in the expected capital expenditure for the year also impacts the 2015 production outlook. Figure 1 shows the updated month-by-month US light oil production and forecast first shown in the May edition. The forecast is split by the life cycle of the well. Drilled, not yet producing represents the production from wells drilled but not completed. Not yet drilled consists of the production coming from wells expected to be drilled based on company reported activity. Compared to Q1 2015 the main difference is the timing of the slowdown in production. The backlog of completed wells has grown faster than predicted, especially for the Permian plays, therefore the slowdown took place in June/July, rather than late summer.
Figure 2 shows the light oil production for the top 5 plays. Eagle Ford and Bakken are the two largest plays in terms of light oil production. Eagle Ford 2015 production is expected to remain flat for the year, while Bakken is expected to start increasing again in August. The uncertainty in the forecast is when the companies will start to increase completions. The increase in Q4 production in Bakken requires ~150 wells to be completed on average each month, compared to the current level of ~100 wells/month. The only play excepted to grow during the year is the Permian Delaware. This is mainly due to companies targeting very profitable wells in the Wolfcamp formation. Based on the latest well results, Wolfcamp in Delaware, Texas seems to be one of the best areas within North American shale.
Table 1 shows the 2015 production and spending forecast broken down to the main shale plays. Total expenditure is expected to drop 40% for the year, with less prospective plays dropping over 60% (Barnett combo, Anadarko tight oil). Cost compression also has an important role for the overall expenditure. On average, operators report ~25% reduction for the year, which results in lower breakeven prices and more profitable wells (ref. July 2015 edition). The reduction in well cost also allows operators to drill more wells with less spending. In 2015, the total shale supply is expected to increase to 14.8 million boe/d, with 5.2 million bbl/d of light oil.
Predicting the 2015 production and spending level is difficult, as we still need to see how companies will react to the lower unit prices. Will operators continue to cut total spending, such as EOG, Devon and Chesapeake, or will they increase spending such as Bill Barrett and Pioneer have reported?
Per Magnus Nysveen, Senior Partner & Head of Analysis
Phone: +47 24 00 42 16
Mobile: +47 99 16 13 09
Contact: Leslie Wei, Analyst
Phone: +47 24 00 42 00
Mobile: +47 90 22 00 76
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