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GKB - "I don't know whether you picked up on this but I found slide 24 very interesting because it shows a declining rig count doesn't correlate that closely with production, look at 2015 and 2019 in particular".
My take on this is when you look at 2015, then was no real shale activity in the Permian. Most of the activity was in Eagle Ford (More oil than gas), Haynesville (gas) and Barnett (gas). Most of the Permian activity was in conventional wells and at that time, Permian shale was just about to get started. As rigs are removed, the production doesn't fall off a cliff right away. Its when the well get into year 2, that the decline curve really steepens, and this is when more rigs are needed to drill wells to keep production levels from previous years stable and maybe growing (more wells than the previous year wells need to be drilled). Given that the rigs counts only started dropping in January this year, the one-year cycle doesn't start until 2020, IMO. Based on the above, I'm not surprised about 2015 production rates only flattening a bit, and I'm certainly not surprised that the 2019 production rate isn't falling or even flattening yet, but that should be noticed in 2020.
This came out of Abu Dhabi yesterday: "US producers are waiting to take their cues from OPEC, Francis Fannon, head of the US State Department's Bureau of Energy Resources, said at the conference. He joked that he did not envy the job that Barkindo has in chairing meetings of the producer group as it struggles with the rise of US shale supplies that have capped oil prices.
"US production responds to market conditions," he said. "When prices go up and down, US producers will modulate to meet demand."
The Energy Information Administration has forecast that US crude production will grow 900,000 b/d next year, and even OPEC's own projection sees a rise of 1.01 million b/d for 2020.
But Barkindo said US shale companies themselves had told him those forecasts were too optimistic. Many shale operators have outlined the financial pressures they are facing, in recent earning calls.
UAE energy minister Suhail al-Mazrouei also said at ADIPEC that he sees "a softening of what the US can produce," pointing to the increasing water cut of barrels pumped from shale formations.
Meanwhile, OPEC is forecasting "robust" global GDP growth of 3% for 2020, and oil demand growth of 1 million b/d "is reasonable," Barkindo said.
"The fundamentals of the global economy remain strong," he added. "A global contraction that will lead to a recession is not on the horizon. There is no cause for alarm at the moment."
There are contradictions even in that short passage. I think that Shale is maturing but the helter-skelter approach has built up debts. It is in everbody's interest, especially those on life support, to keep producing. The banks encourage it because they want their capital back and the shale companies have to go along. It'll be a different story once things settle down and the shalers are looking for fresh credit. The current situation is imo a mixture of DUCs and creditor pressure. Also don't forget we think Brent which is generally priced higher. Shale is here to stay but not as big a threat as once feared. The water needed is facing environmental pressures and a possible Democrat administration.
I agree epiphany, the report GKB posted is very interesting & informative, but regardless it doesn’t hurt to relay a bit of first hand info to you guys. Deffo shale is going to be an ongoing thorn, unfortunately.
BB - I have no doubt that some Tier 1 areas in the Permian and other Shale basins have a lower break-even than even $40. The Dallas fed link that GKB posted makes very interesting reading. In Q3, many more shalers generated FCF after capex with WTI averaging $56 or so in Q3. The other interesting piece of news from them is that they're reducing drilling costs quickly - both from squeezing suppliers and driving other drilling efficiencies. Maybe that's why they can do more with lower capex in 2020.
I'm not in the sceptical camp when it comes to shale. You disregard them at your risk is the reality. And it shows up on days like today when you read that US production hit a new high.
I know I’ll probably get shot down for what I am about to say re shale, but recently I met an old acquaintance who is a long serving employee of one of the worlds largest oil service companies. Apart from him bemoaning the scarcity of bright young kids wishing to get involved with the oil industry, we had a quick chat about shale. He told me & I have no reason to disbelieve him, that US shale operators can make a profit at USD 40. I know this is a very general comment & doesn’t reflect all the fields, but it sort of reflects the slowing but still increasing shale production. I know there is plenty of documentation, you guys can call onto contest what I was told, but there you have it all the same.
So non adjustments.
Seeing a deficit in hard data prior to this residual adjustment-number beating the 914 data month by month you should start reflecting on the real production. Where does this put storage levels mathematically?
Best, HMH.
The 4-week average I pulled together is reported every week in the weekly EIA report, and it's based on their reported weekly production number for the prior 4 weeks from the current week's reported date.
EIA does say that historically their model's variance to monthly actuals is under 2% . We'll see what the actuals come out for August.
Epip,
Good data gathering. How do you calculate the 4w average? With or without adjustment? What's your adjustments?
Adjustment could be lower export, higher import, higher exports, higher import, or linefill? Where's the flawed data?
Best, HMH
HMHn,
Point taken that the weekly model could well be overstating numbers because of the adjustments figure that they use on a weekly basis and the 914 report is what should be the 'gospel'. However, i've pasted numbers showing the difference between the 914 report and the 4-weekly average at end of month (from the weekly report), and for the past 5 months, the average overstatement has been circa 110 kbopd and that isn't a huge overstatement.
We'll see where we land in the August 914, but the lower rigs effect on reducing /dampening production is not likely to be seen till next year at least.
Monthly 914 EIA 4-week average Overstatement
Apr-19 12,123 12,200 77
May-19 12,113 12,250 137
Jun-19 12,060 12200 140
Jul-19 11,766 11950 184
Aug-19 12,365 12375 10
Heardy,
From Erik Townsend:
"It's amazing the Cushing draw was ONLY 1.22mm bbl. The #Keystone pipeline being offline for the entire reporting period took >4mm bbl out of Cushing. So a 1.22mm draw means we'd have had a massive 2.8mm build if the pipeline had not been taken offline. Now back @ reduced pressure"
See my prior post. The weekly data is deteriorating. EIA use complicated econometric models and therefore numbers will likely be as flawed as whatever model is used. It's not a questionnaire to the producers- but rather a forward assessment of prior moving averages.
EIA is always wrong. Working for the government is a losers game. Anyone with a brain leaves before 40 to enter private entities.
Model is likely 20 years old. Worked well around the dot-com bubble.
If the model is based on MA the production numbers should drop a few months later. I bet 2020/21 should flush out shalers. I guess the gap is 6 months in the EIA-model looking at when production came in.
We'll see. Economists are stupid yet highly educated. Toxic combo.
I don't believe the figures tbo, rig count says it all when you consider how much they were allegedly producing a year ago, what's remaining can't possibly be producing these amounts but wtfdik, Strategic reserve top ups I reckon. They were either lying then or they are now, EIA spouting average $60pb for next year, keep fudging until the US election.
Doesn't look like our Shale friends are going to cut production, record rates still increasing. What do they want … $40 wti ?
Epip,
Having worked alot with econometric models, I suspect we're looking at some massive residual errors when regressing the time series of the recent years output. Hence the adjustment - which is likely just a statistical figure to keep the "production" figure within the boundaries of the model used. The data is deteriorating in a serious pace as adjustments keep on increasing.
At some point this will have to be reversed. 914 production figures are always lower and they have been for some time. US stockpile is probably 150-200m lower than reported figures in my mind.
I don't quite know how they keep doing it, but production's now hit an all-time high of 12.8 MMbbls/day. Talk about shooting yourself in the foot - oh well, the shalers!!!
They shrink to survive - good for WTI/Brent (Finally). 8% budget cuts this year and apparently trending towards a 15% cut next year.
https://www.houstonchronicle.com/business/energy/article/U-S-shale-sector-shrinking-to-survive-14833356.php