New US Shale Play Emerges As Rig Count Rises For 21st Week In A Row

Tyler Durden's picture

Crude production from the Lower 48 dropped marginally last week, despite rising rig counts...

 

And in the last week oil rig counts rose once again (21st week in a row) up 8 to 741 - highest since April 2015 - notably given the lagged response to prices, we might expect the rig count rises to slow here.

But, while the Permian has dominated the conversation in recent months, OilPrice.com's Irinia Slav explains the next big US shale play...

Media coverage of the U.S. shale oil and gas industry makes it sound like the Permian is the only place where things are happening. Everybody is buying acreage in the Permian, selling acreage in other shale plays, and production costs are falling the fastest in that same Permian.

True as this may be, this shale play is by no means the only one where production is growing. In fact, oil and gas output across the shale patch has been growing, as the Energy Information Administration’s latest drilling productivity report shows. And that’s not all because there is a new actor on stage: Powder River Basin in Wyoming.

Now, in its May drilling productivity report the EIA confirmed what media have been saying: the Permian is the hottest spot in the shale patch, with a 71,000-bpd increase in output in April. This hottest spot was followed by the Eagle Ford, which some see as a declining play but if we are to believe EIA data, it is far from a decline: drillers there added 36,000 bpd to total output in April.

Bakken, which the EIA last year said will become the largest source of tight oil and gas in the U.S., added 6,000 bpd to daily production, with Niobrara added 7,000 bpd. Even the Marcellus and Utica plays, which are more famous for their gas, are yielding more crude, with both adding 1,000 bpd to overall output in April.

All in all, despite much skepticism and open doubts in the actual performance of U.S. shale, the fact is that shale drillers are indeed boosting production. There is a school of thought that says the shale bubble will burst at some point, when producers stop being able to service the debts they are taking out to increase production but let’s bear in mind that they are not just investing in more production. Shale drillers are also investing in efficiency improvements that lower their production costs.

Now for the new player in the field, which is in fact not new at all. Bloomberg’s Alex Nussbaum calls Wyoming’s (and Montana’s) Powder River Basin “a home to cattle ranches and coal mines.” Yet until the 2014 price crash, the PRB was one of the shale oil basins that were growing at the fastest rate. Then prices tanked and drillers started getting out.

Now drillers are returning to the PBR. Crude oil production in the basin jumped to 1,000 bpd of oil equivalent over the last 12 months from less than 800 barrels and a major drilling expansion is on the way.

EOG, Chesapeake, and Devon Energy are planning to spend a combined US$600 million in that part of Wyoming, and pipeline operators are eager to expand in that direction. The reason: land prices are much lower than those in the Permian, for the moment. It’s all about early birds catching worms, and the earlier a bird is the better because prices in Powder River are already rising. A year ago, Nussbaum says, drilling permits went for less than US$1,000 per acre. Now, an acre costs US$17,000.

It may be that the Powder River Basin will repeat the success of the Permian, not least because its geology is similar, which of course means low production prices. Just this week, a local midstream operator, Evolution Midstream, purchased a gas gathering system from peer Lucid Energy Group, saying the asset will make the foundation for regional expansion now that interest in the Powder River Basin is growing so fast.

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back to basics's picture

And all this in the face of weakening demand. Yeah, this will end well......

Ghost of PartysOver's picture

Why yes, yes it will for those Short Crude.

cheka's picture

peak oil.  they got us good with that one

Cloud9.5's picture

Tell it to the Brits.  Big money is now being made in scrapping the North Sea oil rigs. I know, the North Sea will refill itself, but what do they care.  What we are witnessing is an ongoing collapse in a massive integrated system. Failed budgets in cities, territories and states, massive money injections in the financial sector, failed pension plans; all of these are symptoms of this ongoing process. The evidence first appears on the periphery, and then it migrates to the core.

cheka's picture

US a giant in the oil market - production, reserves....natgas too....and then there's all of that solid oil (coal) laying around the US too

https://www.theguardian.com/business/2016/jul/06/report-us-world-largest...

Report: US is now world’s largest oil reserve

 

The United States has surpassed Saudi Arabia and Russia as the global leader in oil reserves, according to a report by a Norwegian consultancy firm.

“We have done this benchmarking every year, and this is the first year we’ve seen that the US is above Saudi Arabia and Russia,” Per Magnus Nysveen, head of analysis at Rystad Energy, said. He credited the rise to a sharp increase in the number of discoveries in the Permian basin in Texas over the past two years.

The report found that many, especially members of the Organization of Petroleum Exporting Countries, exaggerated the size of their reserves in self-reported surveys. Rystad Energy came to the conclusion by only recording each country’s economically viable reserves.

Hohum's picture

Year over year, 125% more rigs, 9% more production.  Yeah, real good.

 

http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother

cheka's picture

easier to fool a man than to convince him he's....

look up the definition and purpose of a cartel

 

Déjà view's picture

Time for another oil bath...been a while...

"I'm rich Bick"...

~ Jett Rink

https://m.youtube.com/watch?v=50WphCvOubE

iampreparedru's picture

We import half our oil, something like 4.5 million barrels per day, we have a long ways to go. 

Sofa King's picture

Question is how much of the oil that we're importing are we refining and then exporting as other products. The parts are vastly more valuable than the whole.

I've seen some crazy shit lately...the dynamic is mind- numbing.

cheka's picture

that should wane over time as refineries start running US crude from pipelines rather than foreign crude from ships

Lumberjack's picture

They are trying to cut an immunity deal in BK court for SUNE execs. Lots of still missing money and other problems.

johnnycanuck's picture

"let’s bear in mind that they are not just investing in more production. Shale drillers are also investing in efficiency improvements"

This Advertisement brought to you by the World Leading Magic Bean brokerage firm of Cheatem, Fleecem and Moore.

 

Cloud9.5's picture

If banks can buy $1.5 trillion in assets in five months with conjured money, why would they not be able to put billions into shale oil production? At the end of the day you maintain and possibly even ramp up production.  In this environment markets have little to do with these investments.

mo mule's picture

Well I still say that oil is going to $14. a barrel sometime in the not to distance future.

 Then again if WW3 starts up with NK and US oil could be headed for the stars? 

NK has tested land to ship missiles this past week. So does NK take the first shot and hit the US carriers? 

I pray not, but NK is being run by one crazy SOB! So who in their right mind would know?    

/s

Cloud9.5's picture

You may be right, deflation occurs after a bust when everyone discounts their assists to maintain cash flow. Eating is such an addiction.

E.F. Mutton's picture

Woo-Hoo.  New F150 for Bubba!

SirLarryWildman's picture

You have got to be kidding me. The Powder River Basin is not the Permian. It takes months and months to pump off all the water these wells make. If these wells were anything like the Permian wells, companies would be pilling into this play as quickly as possible. Looney. 

unsafe-space-time's picture

The US has an infinite supply of shit for brains