Shale oil production's brief comeback

US onshore oil output has been quick to rebound after a wave of shut-ins that crushed earnings in the second quarter, but the comeback may be short-lived.

Lower prices caused by the Opec+ fight for market share in April and demand drops resulting from the Covid-19 pandemic pushed onshore output in the lower-48 states — where most shale formations are located — to 7.84mn b/d in June, EIA data show. Roughly 800,000 b/d is returning in August-September, but output will then decline slightly for the rest of this year (see graph).

Wells have been surprisingly productive after coming back, some firms say. Restarts show some level of "flush production" — a rush of output at much higher flows than previously — before returning to earlier decline rates. That was the case for EOG Resources, which also found that base production declines were less than previously forecast. It increased its full-year output guidance by 4pc, or 16,000 b/d. EOG's output was 331,000 b/d in the second quarter. But it expects that to rise to 363,000-373,000 b/d in the third quarter, assuming WTI crude prices stay near $40/bl, and to 435,000-445,000 b/d in the fourth quarter.

Hess increased its full-year production guidance to 330,000 b/d of oil equivalent (boe/d) from 320,000 boe/d after crude prices rose. The firm is focused on the Bakken formation, where its output even rose marginally to 194,000 boe/d in the second quarter from the first. Output is expected at about 185,000 boe/d this quarter and to be 185,000 boe/d for the full year — up from the previous 175,000 boe/d guidance.

Some companies thrived amid the turmoil. Matador Resources reported record output of 73,300 b/d in the second quarter, a 20pc increase from a year earlier, thanks to particularly prolific new wells in the New Mexico section of the Permian basin. The firm also increased its full-year production guidance to 72,000-74,000 boe/d, up from the 66,000 boe/d it produced last year.

There has also been a rise in the number of crews undertaking hydraulic fracturing work at US wells as conditions become more favourable for producers. Fracking crew numbers rose by 6-8pc in July, consultancy Tudor Pickering Holt says. The teams are likely to be working on recently drilled wells or, more probably, working through a swollen inventory of drilled-but-uncompleted wells (DUCs).

Out for a DUC Some producers are turning away from shale operations. Apache, with 1.8mn net acres (7,300km²) in the Permian basin, put the area last on a list of regions where it plans to bring back production, after projects in Suriname, Egypt and the North Sea. "We do not envision returning rigs to the Permian basin unless oil prices recover well into the $50s/bl," chief executive John Christmann says. Apache's US production fell by 5pc to just over 250,000 boe/d in the second quarter, and it projects that third-quarter output will fall to 235,000-245,000 boe/d.

But the potential for US shale output to recover quickly remains because so much infrastructure is already in place and producers are deeply invested in the sector. The Permian basin alone contains nearly 3,500 DUC wells, which are ready to be brought on line with relatively little effort (see graph).

Massive operations, such as ExxonMobil's, are idling but ready to increase activities again. The firm's Permian production was 300,000 boe/d in the second quarter, up by 9pc from a year earlier. It says it expects to produce 345,000 boe/d in the basin this year — just 15,000 boe/d below its forecast in March and 70,000 boe/d above its production last year — despite halving its rig count to 15. "I do not anticipate that our volumes will reduce next year," ExxonMobil senior vice-president Neil Chapman says, although it has not finalised its 2021 plan.

By Tom Fowler

US shale producer output &#39;000 b/d 2Q20 3Q20* 4Q20* Full year 2020* Diamondback 176 — 170-175 178-182 Marathon Oil† 182 na 190 173-179 Pioneer 215 191-201 — 203-213 Parsley 113 113 113 — Continental 95 — — 155-165 EOG 331 363-373 435-445 — Cimarex 78 69-74 — 75-78 Devon 153 138-143 148-152 WPX 98 124 140 — *forecast †US operations only

US lower-48 onshore production

US drilled-but-uncompleted wells

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