U.S. March Oil Production Recovers

U.S. March Oil Production Recovers

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A guest post by Ovi

All of the oil (C + C) production data for the US state charts comes from the EIA’s Petroleum Supply monthly PSM.

US C + C Production

US C + C Production (Author)

U.S. March production increased by 349 kb/d to 11,655 kb/d. Relative to November’s 2021 production of 11,769 kb/d, March is still 114 kb/d lower. The main increases came from Texas 147 kb/d, ND 66 kb/d and the GOM 75 kb/d.

While overall US production was up, a clearer indication of the health of US onshore oil production can be gleaned by looking more closely at the On-shore L48 states. In the On-shore lower 48, March production increased by 284 kb/d to 9,525 kb/d.

The blue graph, taken from the May 2022 STEO, is the production forecast for the US from April 2022 to December 2022. Note that it is forecasting a decline for April. Output for December 2022 is expected to be 12,468 kb/d, a revision of 129 kb/d lower than was forecast in the April STEO report. From April 2022 to December 2022, production is expected to increase by 842 kb/d or at an average rate of 93.6 kb/d/mth. Note the DPR and LTO reports below do not confirm the optimistic STEO production projection.

10 states with largest US production

10 states with largest US production (Author)

Listed above are the 10 states with the largest US production. These 10 accounted for 82.4% of all US oil production out of a total production of 11,655 kb/d in March 2022. Note that all of the above states, except Alaska and California, produced more oil in March than one year ago.

On a YoY basis, US production increased by 495 kb/d.

Texas

Texas (Author)

Texas production increased by 147 kb/d in March to 4,972 kb/d from 4,825 kb/d in February.

In September 2021, there were 204 Hz oil rigs operating in Texas. By the last week of March 2022, 275 oil rigs were operating, an increase of 71 rigs and production is back to the same level as September 2021, which was 4,982 kb/d.

New Mexico

New Mexico (Author)

March’s New Mexico production increased by 66 kb/d to a record 1,467 kb/d. Since December 2021, very close to 90 rigs have been in operation in the NM Permian. The production increase is due to more wells being completed than drilled. See DPR section below.

North Dakota

North Dakota (Author)

North Dakota’s March output was 1,106 kb/d, an increase of 34 kb/d from February.

According to this source, ND’s April oil production was hit hard by two winter blizzards.

State officials say a pair of blizzards that smacked North Dakota in April caused a dramatic reduction in oil production. The Bismarck Tribune reported that State Mineral Resources Director Lynn Helms provided state regulators updated production estimates Friday. He said the state’s oil industry had been producing about 1.1 million barrels daily until the blizzards hit. The first storm began on April 12 and lasted three days. Helms says it caused production to fall to about 750,000 barrels per day. The industry had rebounded to 950,000 barrels per day when the second storm hit on April 23. That blizzard caused production to drop to just 300,000 barrels per day. Production has since increased to about 700,000 barrels per day.

A rough estimate of what North Dakota production could be in April was made using the above information. The projected production is expected to be close to 860 kb/d, a loss of 240 kb/d.

Alaska

Alaska (Author)

Alaska’s March output declined by 10 kb/d to 440 kb/d.

Colorado

Colorado (Author)

Colorado’s March production increased by 4 kb/d to 429 kb/d. Colorado has had 10 Hz oil rigs operating since November and had 12 operating in March.

Oklahoma

Oklahoma (Author)

Oklahoma’s output in March increased by 23 kb/d to 409 kb/d. March’s output broke out above the 380 kb/d to 400 kb/d range it has been in since March 2021. The rig count has increased from 17 in March 2021 to 48 in March 2022.

California

California (Author)

California’s slow output decline continued in March. Output decreased by 1 kb/d to 339 kb/d.

Wyoming

Wyoming (Author)

Wyoming’s production has been in a slow unsteady decline since September 2020 when output reached 247 kb/d. In March 2022, output decreased by 5 kb/d to 228 kb/d, down 19 kb/d from September 2020.

Utah

Utah (Author)

Utah’s production increase from the low of May 2020 appears to have stopped/slowed in November 2021. March’s production increased by 1 kb/d to 115 kb/d.

Louisiana

Louisiana (Author)

Louisiana’s output increased by 4 kb/d to 98 kb/d in March. Louisiana was one of the hardest hit states by hurricane Ida in late August. March’s output increase indicates that Louisiana’s slow recovery is continuing. Louisiana had 2 Hz oil rigs operating in March.

Gulf of Mexico

Gulf of Mexico (Author)

GOM production recovered in March from the decline that started in November 2021. March’s increase was 75 kb/d to 1,690 kb/d. If the GOM was a state, its production would normally rank second behind Texas.

The May 2022 STEO projection for the GOM output has been added to this chart and projects output will be 1,798 kb/d in December 2023. This is 10 kb/d lower than projected in the April report and 214 kb/d lower than the high of 2,012 kb/d in August 2019. For April 2022, the STEO is projecting an increase to 1,778 kb/d.

A Different Perspective on US Oil Production

US States Big Two: Texas, New Mexico

US States Big Two: Texas, New Mexico (Author)

The Big Two states, combined oil output for Texas and New Mexico.

The Rest: On-Shore Lower 48 W/O Big Two

The Rest: On-Shore Lower 48 W/O Big Two (Author)

Oil production for The Rest

To get a different perspective on US oil production, the above two charts have broken US state production into two groups, “The Big Two” and the “On-Shore L48 W/O Big Two” or The Rest.

March production increased in the Big Two states by a combined 213 kb/d, with Texas adding 147 kb/d and New Mexico adding 66 kb/d.

Over the last year, the Rest appear to be holding steady at close to 3,000 kb/d. For March, production increased by 77 kb/d to 3,086 kb/d.

Rigs and Fracs

US, Texas & Permian Weekly Hz Oil Rig Count

US, Texas & Permian Weekly Hz Oil Rig Count (Author)

The US total Hz oil rig count for the week ending May 27 was 528, an increase of 1 over the previous week. The latest rig data appears to continue the earlier trend of the addition of 3.7 rigs/wk, on average. Comparing the slope of the Texas rigs since the beginning of 2022 with the US rig chart, it appears that the increase in US rigs is primarily occurring in Texas.

Frac Spreads

Frac Spreads (Author)

During December 2021, 37 frac spreads were decommissioned primarily due to the holidays and the total dropped to a low of 234 at the end of December. During the month of January, 27 frac spreads were reactivated and in February an additional 29 were added for total of 290.

In the week ending May 27, the frac spread count decreased by 5 to 288 and was down 2 from the high of 290 at the end of February. The drop in Frac spreads could be due to the Memorial Day weekend. Clearly, the rate of frac spread additions has slowed since late November 2021.

Note that these 288 frac spreads include both gas and oil spreads, whereas the rig information is strictly Hz oil rigs.

Frac Spreads vs. Hz Rigs

Frac Spreads vs. Hz Rigs (Author)

This chart shows the relationship between the rig count and frac spreads. Since the week of December 10, 2021, the increase in weekly frac spreads compared to the weekly rig increases has slowed. While 103 oil rigs were added over that period, only 16 frac spreads were added. Does this imply that frac spreads are getting more efficient at completing wells or does it imply that companies have decided to complete fewer wells or does it imply a shortage of frac materials such as water and sand?

NYMEX WTI Continuous Front Month

NYMEX WTI Continuous Front Month (Author)

WTI

The WTI July contract settled on June 1 at $115.26/b. It is now $8.50/b below the previous high of $123.70. The recent increase is due to Shanghai and Beijing reopening after the lockdown associated with the recent Omicron outbreak. The SPR release is being totally ignored.

1) Short Term Energy Outlook (STEO)

The May 2022 STEO provides projections for the next 22 months, starting with March 2022 to December 2023, for US C + C, OPEC and other oil production related information of interest.

US C + C Production Projected to Dec 2023

US C + C Production Projected to Dec 2023 (Author)

The May 2022 STEO has revised downward its projected US oil output from March 2022 to late 2023, primarily in 2022. December 2023 has been revised up by 30 kb/d from the previous April 2022 STEO. In December 2023, output is expected to reach 13,284 kb/d.

Using only the projected data from March 2022 to December 2023 to fit an OLS line, the STEO is forecasting production will increase at an average rate of 76.1 kb/d/mth, similar to the average rate of 75.4 kb/d/mth estimated in the April report. If the December 2023 output is achieved, it will be 318 kb/d higher than the November 2019 record. The monthly rate translates into a tearily increase of more than 900 kb/d/yr. A difficult challenge.

Note the discrepancy of 69 kb/d between the actual March US oil production of 11,655 kb/d vs the STEO forecast of 11,586 kb/d. A reasonably good estimate.

STEO Lower 48 C + C and L48 W/O GOM

STEO Lower 48 C + C and L48 W/O GOM (Author)

This chart compares the STEO’s forecast for the L48 states from the February report with the current May 2022 report to better illustrate changes in the EIA’s forecast. For the Lower 48, the December 2023 output is essentially the same as in the April report, an increase of 2 kb/d to 11.04 Mb/d. However, production in 2022 has moved closer to the original February forecast.

The April STEO output projection for the Onshore L48 states for 2022 has also been revised down in the May report to show decreased production. The output projection for December 2023 is essentially the same, again increased by 2 kb/d while 2022 production has moved closer to the earlier February forecast.

STEO Projected WTI Price

STEO Projected WTI Price (Author)

The May 2022 STEO oil price forecast continues to show a steady decline from the EIA’s new March peak of $108.50/bbl to $93/bbl in December 2023. Essentially, the EIA is continuing to forecast that the only direction for the price of WTI going forward is down to $93/bbl. However, what is different with their latest forecast is that the price of oil is shown to stabilize in the $93/b area during the latter half of 2023.

However, it should be noted that the December 2023 price has been increased over the last four months. In the January 2022 report, the December 2023 price was projected to be $62/bbl. December 2023 has now been increased by $31/b to $93/b.

The July contract settled at $115.26 on June 1, $15.75/b higher than the EIA’s forecast of $99.50/bbl average for the July contract.

OPEC Crude Production Projected to Dec 2023

OPEC Crude Production Projected to Dec 2023 (Author)

This chart shows the STEO’s May forecast for OPEC crude output from April 2022 to December 2023. OPEC’s output is projected to increase from April 2022 to December 2022 by 994 kb/d to 29,484 kb/d. After December 2022, production remains essentially flat at close to 29,470 kb/d out to December 2023.

The May report has increased OPEC output in December 2022 by 170 kb/d over the April report. Similarly, December 2023 output has been increased by 170 kb/d. Considering the difficulties that OPEC is having in meeting its production commitments, the source of this increased production is not clear.

For April 2022, the May STEO forecasted OPEC production to be 28,490 kb/d. Actual April production as reported by OPEC was 28,648 kb/d, higher by 158 kb/d. It is not clear why the STEO estimate was low.

World Supply/Demand Balance

World Supply/Demand Balance (Author)

This chart shows the historical world supply/demand balance up to March 2022 and after that, the EIA’s forecast out to December 2023.

From April 2022 to December 2023, the STEO is forecasting an average monthly surplus of close to 167 kb/d, down from 518 kb/d in the previous report. The sanctions on Russian oil and increased prices may account for the downward revision to this month’s surplus forecast.

2) Drilling Productivity Report

The Drilling Productivity Report (DPR) uses recent data on the total number of drilling rigs in operation along with estimates of drilling productivity and estimated changes in production from existing oil wells to provide estimated changes in oil production for the principal tight oil regions. The May DPR forecasts production to June 2022 and the following charts are updated to June 2022.

DPR Total Production

DPR Total Production (Author)

Above is the total oil production projected to June 2022 for the 7 DPR basins that the EIA tracks. Note that DPR production includes both LTO oil and oil from conventional fields.

After the EIA reported lower than expected US onshore L48 production for December and January, the DPR revised its output forecast down.

The DPR is projecting that oil output for June 2022 will increase by 142 kb/d to 8,762 kb/d. From February’s output of 8,231 kb/d to June 2022, output in the DPR basins is forecast to increase by 531 kb/d or by an average of 133 kb/d/mth. Note that this monthly production rate is much higher than the STEO rate of 76.1 kb/d projected for all of 2022 in the STEO section above.

It is difficult to assess what is really happening in the near term in the DPR basins since significant revisions are made to the previous few months. For Instance, did June production really increase by 142 kb/d? In the March DPR report, April output was projected to be 8,708 kb/d (Red markers). The current May report revised April output down to 8,489 kb/d, down 219 kb/d, and June is now 54 kb/d higher at 8,762 kb/d than April’s output reported in the March DPR forecast. So what is the real increase/trend?

DPR Permian Production

DPR Permian Production (Author)

Permian output exceeded 5,000 kb/d in April 2022 and continues to increase. In June, production is expected to increase by 88 kb/d to a new high of 5,219 kb/d. From January to June, production is forecast to increase by 369 kb/d or at an average rate of 73.8 kb/d/mth. If the Permian were part of OPEC, at 5,219 kb/d, it would be the second largest producer after Saudi Arabia.

Due to revisions, June’s Permian output is 11 kb/d higher than the DPR’s April production forecast of 5,208 kb/d reported in the March report (red markers). April was revised down by 158 kb/d to 5,050 kb/d from the May report.

During April, 388 wells were drilled and 434 were completed in the Permian. The completed wells added 349 kb/d to March’s output for an average of 805 kb/d/well. The overall decline was 270 kb/d, which resulted in a net increase for Permian output of 79 kb/d. Of the 434 completed wells, 336 were required to offset the decline. It is the completion of the additional 98 DUCs, over and above the drilled wells, that accounts for the increase in the production in the Permian.

Average Daily Permian New Well Production

Average Daily Permian New Well Production (Author)

This chart shows the daily production from the average new Permian well tracked on a monthly basis. The daily output for new Permian wells was divided by the number of completed wells, as reported in the DPR and DUC reports. Note this chart is two months behind the DPR production charts.

It appears that the average first month output is close to 800 kb/d. January dropped due to bad weather in Texas. April was essentially unchanged from March at 805 kb/d and February was revised down to 709 kb/d from 795 kb/d.

Eagle Ford

Eagle Ford (Author)

Output in the Eagle Ford basin has been showing an increasing trend since March 2022. For June, output is expected to increase by 27 kb/d to 1,176 kb/d. Since the beginning of the year, 19 rigs have been added up to the end of May for a total of 57, which explains the increasing output.

Bakken

Bakken (Author)

The DPR forecasts Bakken output in June to be 1,189 kb/d, an increase of 17 kb/d over April. However after revisions, June production is 3 kb/d higher than was forecast for May in the previous report.

It has been reported that North Dakota April production was hard hit by severe winter weather and, clearly, this information has not be incorporated in the above graph. It is expected that April production will drop by close to 240 kb/d.

Niobrara

Niobrara (Author)

Output in the Niobrara is now showing signs of starting to plateau around 630 kb/d.

DUCs and Drilled Wells

Total DUCs for Bakken, EF, Niobrara, Permian

Total DUCs for Bakken, EF, Niobrara, Permian (Author)

The number of DUCs available for completion in the Permian and the four major DPR oil basins has continued to fall every month since July 2020. Prior to July, more wells were drilled than were completed.

Monthly DUC Completion Rate for Bakken, EF, Niobrara, Permian

Monthly DUC Completion Rate for Bakken, EF, Niobrara, Permian (Author)

In these four primarily oil basins, the monthly completion rate of DUCs started to slow after peaking in March 2021. For example, in March 2021, 329 DUCs were completed. In April 2022, 67 DUCs were completed, 38 fewer than in March. Similarly, the monthly completion rate for DUCs in the Permian continues to fall. It dropped from 71 in March to 46 in April. Is this an indication that the remaining DUCs are getting less economic?

Permian DUCs Inventory Months

Permian DUCs Inventory Months (Author)

If Permian DUCs were to be completed at the latest rate of 46 DUCs/mth, that converts into 27 months of DUC inventory, assuming the remaining 1,256 are all commercially viable. The increase in DUC inventory months is due to the slowing rate of completions.

Completed and Drilled Wells in Permian

Completed and Drilled Wells in Permian (Author)

In the Permian, the monthly completion of wells has reversed direction since the low of 363 in June 2021. In April, 434 wells were completed, one more than in March and completions are showing signs of a slowing growth rate since February. During April, 388 new wells were drilled, an increase of 25 over March. To counteract the slowing completion of DUCs, drilling has been increased. See next chart.

Excess of Permian Completed Wells over Drilled

Excess of Permian Completed Wells over Drilled (Author)

In October 2021, there were 124 more wells completed in the Permian than were drilled. In April, the number of excess wells completed was down to 46 since the drilling rate was higher than the completion rate. To offset the drop in the use of DUCs, more wells had to be drilled.

DPR Production Decline Rates

Decline Rate vs. Production in Seven DPR Basins

Decline Rate vs. Production in Seven DPR Basins (Author)

The DPR reports monthly on the past and future production of tight and conventional oil in the seven basins along with decline rates. Typically, the DPR is four months ahead of the EIA’s monthly production report.

This chart shows the relationship between the decline rate and production rate using only the combined data from the seven DPR basins after April 2021. The OLS line only used the most recent data between April 2021 and May 2022. However, the chart includes some data from the time when production was higher, i.e. the four markers around production at 9,200 kb/d. Their position close to the OLS line may be purely accidental since they are from a different dynamic production period.

The latest data for June was added to the chart but the OLS line was not recalculated. Note that it falls very close to the original OLS.

The equation says that for every 100 kb/d of production increase, the decline rate increases by 8.27 kb/d, on average. That makes sense since the newest wells have the highest decline rates.

3) LIGHT TIGHT OIL (LTO) REPORT

The EIA’s LTO database provides information on LTO production from seven tight oil basins and a few smaller ones. The May 2022 report updates tight oil production to April 2022.

US Tight Oil Production

US Tight Oil Production (Author)

The May LTO report made downward revisions to their April production forecasts reported in the previous post. The biggest revisions in output occurred in February and March and were lower than the previous ones. This follows the same trend reported in the DPR report.

April’s LTO output increased by 95 kb/d to 7,705 kb/d. However, it is just 4 kb/d higher than the March output of 7,701 kb/d reported in the April report.

To get a better indication of the recent trend in LTO growth, it is better to look at the growth from January 2022 to April 2022. Over that period, output increased by 205 kb/d or at an average rate of 51.3 kb/d/mth. This is 67% of the expected US oil production growth rate reported in the STEO section above. There appears to be a disconnect between the STEO and DPR and LTO reports.

Permian Tight Oil Production

Permian Tight Oil Production (Author)

Permian LTO output first reached a new high of 4,351 kb/d in September 2021. April’s output increased by 49 kb/d to 4,471 kb/d and is 167 kb/d higher than the high of 4,304 kb/d recorded in March 2020.

Note that the April’s output is 8 kb/d higher than the March output of 4,463 kb/d reported in the April report. The initial estimates for January, February and March were all lowered from last month’s report.

Bakken Tight Oil Production

Bakken Tight Oil Production (Author)

The Bakken’s April output increased by 18 kb/d to 1,112 kb/d. Note it is still below the October 2020 level of 1,212 kb/d and below the 1,125 kb/d production reported in the March LTO report. Again, February and March were revised lower.

According to this source, ND’s April oil production was hit hard by two winter blizzards. This drop has not been incorporated in April’s LTO production for the Bakken.

Eagle Ford LTO Oil Production

Eagle Ford LTO Oil Production (Author)

Production in the Eagle Ford basin since August 2020 has been essentially flat at close to 1,000 kb/d. Are the drillers doing this intentionally or is it just accidental or geology?

The Eagle Ford basin production increased by 22 kb/d to 997 kb/d in April.

Niobrara LTO Oil Production

Niobrara LTO Oil Production (Author)

After increasing production from March 2021 to October 2021, output in the Niobrara began to drop in November 2021. April’s output fell by 5 kb/d to 428 kb/d.

Onshore L48 Conventional Production

Onshore L48 Conventional Oil

Onshore L48 Conventional Oil (Author)

Conventional oil output in the Onshore L48 rose by 211 kb/d in March to 1,905 kb/d but is expected to drop to 1,711 kb/d in April. This estimate is based on a combination of the expected April LTO output and the May 2022 STEO report that has an April 2022 forecast for the US Onshore L48 output. Data from January to March in the STEO has been replaced by the actual EIA production data from the current May report.

A note of caution is in order. This chart is derived by subtracting two large numbers which are subject to revision, particularly the last two months, March and April. Only small revisions were made in the November to February production data.

World Oil Production Without the US

World W/O US C + C Production Projection to Dec 2023

World W/O US C + C Production Projection to Dec 2023 (Author)

World W/O US oil production increased by 379 kb/d to 68,297 kb/d in January 2021 according to the EIA.

This chart also projects world production without the US to December 2023. It uses the May 2022 STEO report along with the January International Energy Statistics to make the projection (red markers). It projects that World crude production W/O US in December 2023 will be close to 68,697 kb/d. Note this projection estimates that World Output W/O US will be essentially flat for the next two years. In other words, starting in February 2022, World oil production without the US will be close to 3,900 kb/d lower than in October 2018.

The essentially flat output also means that any increase in World oil demand will have to be provided by the US over the next two years. According to this source, the US Permian will be up to the challenge.

Note that the chart also shows a Capacity Decline Rate line of close to 756 kb/d/yr over the years 2018 to 2023. Capacity decline encompasses natural decline and decline associated with reduced investment for drilling and exploration.

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.

Originally Posted on: https://seekingalpha.com/article/4516246-us-march-oil-production-recovers?source=feed_tag_commodities
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