October 5, 2015
Authors: Per Magnus Nysveen, Senior Partner & Head of Analysis, and Leslie Wei, Analyst, Rystad Energy
Publisher: Oil & Gas Financial Journal, November Edition
Since the last update, the forecasted 2015 North American shale spending and production levels have remained unchanged at 95 billion USD and 15 million boe/d, respectively. This represents a 45% decrease in spending, and 13% increase in production compared to 2014. As the 2015 values are largely known, this quarterly shale update will focus on the expected 2016 trends.
Table 1 shows the 2016 production and spending forecast broken down to the main shale plays. Production is expected to increase 4% while spending levels drop an additional 9%. The shale plays expected to grow the most are: Permian Delaware, Utica and Woodford. The increase in Permian Delaware is driven by EOG, Devon and Concho, where the three operators have maintained or increased the rig count in core Delaware counties this year. Utica is expected to increase 11% in 2016 since low 2015 in-basin prices have resulted in delayed completions. Woodford’s growth is driven by Continental Resources, where the company has continued to focus on its core Scoop and Cana positions. North American oil production from shale is expected to be 5.4 million bbl/d, up 200 thousand bbl/d from 2015. In terms of spending, Permian Delaware is expected to grow 10%, while the other large plays (Bakken, Eagle Ford and Permian Midland) are expected to decrease by ~10%. Spending levels are estimated assuming operators continue activity at the current level.
To put shale into perspective of total North American production, Figure 1 shows the net yearly liquid additions split by source of production. Shale additions dominated the industry since 2010 and have been a consistent source of liquid growth. The 50% drop in rig activity in 2015 and 6-8 month lag between spud and completion is what drives the low growth for shale in 2016. Liquid production in North America is expected to grow by 200 thousand bbl/d in 2016, where shale contributes 330 thousand bbl/d.
Production is able to continue to increase while costs decrease because of a combination of high grading, efficiency gains, and decrease in unit costs. This fact is illustrated in Figure 2, where the metric shows the drilling and completion well cost for each play divided by the Expected Ultimate Recovery (EUR) per well for each year. Since 2011, there is a general decrease in the cost per barrel. The decline for each year is a combination of the consistently higher EURs and the lower well cost, benefits from efficiency gains and lower unit prices. During the first nine months of 2015, there was an observed decrease of 20% per barrel. This trend is expected to continue into 2016, partly because the benefits from lower service costs will be realized for the full year.
In 2016, shale operators are expected to continue activity at current levels, which is sufficient for a slight increase in production year over year. The high grading of acreage helps boost up the production while activity remains low.
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Per Magnus Nysveen, Senior Partner & Head of Analysis
Phone: +47 24 00 42 16
Mobile: +47 99 16 13 09
Leslie Wei, Analyst
Phone: +47 24 00 42 00
Mobile: +47 90 22 00 76
About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway, with additional research teams in India. Further presence has been established in Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro), Africa as well as South East Asia.