Alexander Khurshudov: the fast increase in the US oil production is feedbacked by sales from stocks
The last year was marked by a sharp increase in oil prices followed by the growth in the US oil production. Shale fields are obvious leaders, they have even been setting new records for the last few months. Trumpets are blaring, trolls are having fun – long live America! It’s time to revise what we know about the biggest shale formations.
It must be said that wells drilling (pic.1) started to increase back in the summer of 2016. In the Eagle Ford the number of wells drilled per month has grown from 64 to 178 (2.78 times), in the Bakken from 41 to 95 wells per month (2.3 times), in the Permian Basin from 193 to 527 wells per month (2.7 times).
Now let’s look at the changes in the oil production. Pic. 2 demonstrates the production dynamics.
It can be seen that the 2-3 times increase in drilling in the Eagle Ford and Bakken has hardly affected the production rate, which has been fluctuating within 1-1.1 mln bpd. This is 16.5-32% lower the 2015 maximum. Note that in the Permian Basin it has grown by 59%. Combined, the production increase in all the three formations in the second half of 2017 is slightly higher than before; we’ll go back to this fact later. Now let’s look at how the well stock changed in these oilfields (pic.3).
It turns out the Eagle Ford and Bakken are drilled slowly, with 15.7 and 8.5% increase in the number of wells in the last 1.5 years. As for the Permian Basin, the number of wells has grown by a third during the same time interval. However, there is one more question, what is the recovery from these wells? Let’ look at pic. 4.
The picture shows the daily production per well, including the idle and uncompleted wells. The production was the highest for the Eagle Ford, but it has decreased 2.5 times during the last 4 years.
The Bakken has been in operation for almost 10 years, with 140 bpd initial production and 94 bpd of 2015 maximum; though the production decline is not that sharp there, to about 60-70 bpd.
Finally, the wells in the Permian Basin averaged have never impressed with production rates, though the rates have grown from 65 to 77 bpd in the last two years. This is due to the use of larger frac jobs, up to $5 mln worth.
For the last bit let’s look at the change in the gas-oil ratio (GOR). It can indirectly indicate depletion of a field (pic.5).
The Eagle Ford has a large gas-bearing zone occupying 80% of its territory. Gas was produced before oil there. As oil wells were introduced, the GOR started to decrease, but now it is rising sharply. So, the oil-bearing zone covering 9.2 thousand km2 has almost totally been drilled, with 12.2 thousand wells, each draining on average 75 ha of land. The formation pressure is decreasing, gas is coming out of solution resulting in the oil production decline and gas condensate carryover. The condensate recovery has declined 1.8 times in the last two years.
The Permian Basin shows no signs of depletion so far. Some companies report an increase in the GOR, but it is insignificant for the region in general. This is explained by the huge drilling rate. There are 437 drilling crews working there – 54.6% of the US rig count or 28.2% of the rigs on the planet. Unfortunately, I haven’t managed to find any data about the area of the oil-bearing formation. I roughly estimate it at 65 thousand km2, with about 35% not yet drilled. Under the current rate (5.3 thousand wells per year) it will take 4.5 years.
The highest increase in GOR (1.8 times) is registered in the Bakken. North Dakota authorities publish detailed statistics, which we are going to dwell upon. Water cut is growing at 0.5-1% per year and has reached 62.5 %. Another curious fact is that in the second half of 2017 oil offloading from the field exceeded its production by 9-10.7% (pic.6).
The thing is, the total amount of offloaded oil differs from the wells’ production in the same month. There is gas condensate, which is separated at the pumping units and gas pipelines. There is oil recovered during oil processing, oil contaminated soils cleaning. Picture 6 refers to them collectively as “gathered” fluids. There isn’t much, but 3-3.5mln barrels accumulate over the year.
There is also oil stored in processing tanks. They can be seen quite well in pic. 7 (this is a photo of the pad near the Parshall, ND). Oil in the tanks is separated from water, residual gas and sometimes it is just stored there to be further pumped out for sale.
They may pump out less, and that’s exactly what they did when oil price decreased. When WTI price exceeded $50, they started pumping out more and the Bakken delivered additional 18 mln barrels. By the way, this oil was previously listed as commercial stocks. No wonder the analysts have been racking their brains why with a growing production and a stable import the commercial stocks have decreased by 40 mln barrels by February. The mystery is easily solved – as the oil price started growing companies sold out their stash. These sales accounted for a good half of the increase.
They were motivated by the belief in soon shale happiness and their expectation that the price for oil would soon decrease. 2020-2025 futures long fluctuated within $45-50 for a barrel and even now they cost $9-12 cheaper than spot price. I think they have pumped out all their leftovers in other fields too; meanwhile in the Permian Basin there are 158 thousand wells and over 300 thousand all over the US.
Let’s go back to the Bakken. It doesn’t seem to be fully covered by drilling. The most productive part covering four counties now has 12.3 thousand wells, each draining about 1.9 km2 . Another 3-4 thousand wells may be drilled there. However, the drilling rate has hardly been affected by the increase in the oil price, the rig count varies within 48-54, which is 3.7 times less than 2014 maximum.
In general, I see no grounds for the astonishing forecasts of the increase in the US oil production. I think they have been made under the agitational campaign aimed at decreasing oil prices. Though it has hardly achieved any result, for Brent overcame the $70 limit last week.