US Shale Production Just Hit A New All Time High

Tyler Durden's picture

One month ago, we reported that based on recent data, June oil output from shale producers would post the first double-digit production growth since July of 2015, when oil prices tumbled and a substantial portion of US production was briefly taken offline. While the final data has yet to be tabulated, it is safe to say that this is now the case.

Indicatively, while over the past year total U.S. production was up roughly 525kb/d, virtually all of it, or 98.5%, was the result of horizontal rig production in the Permian Basin, where output rose by just over half a million barrels per day.

The Permian basin has been leading the increase in horizontal oil rig count (+184%)

Also of note is that while US rig shows not signs of slowing yet, in its latest Weekly Oil Rig Monitor, Goldman predicted that $45/bbl is the price below which shale output would finally slow, although that price may also prove a substantial hurdle for many gulf budgets, whose all in cost of production - including mandatory and discretionary government outlays - is roughly the same if not higher.

Rig count (lhs), WTI spot prices (rhs, $/bbl, 3-mo lag)

But what is more notable, is that according to the June EIA Drilling Prodctivity Report forecast, in July total shale (note: not total) basin output would rise by 127kb/d from May's 5.348mmb/d, and hit 5.475 mmb/d, surpassing the previous record of 5.46 mmb/d reached in March 2015. Today the EIA released its latest Drilling Productivity Report, and while the number is not official just yet, it is safe to say that as of July, the total US shale basin is producing a record amount of crude oil, which the EIA pegged at 5.472mmb/d, up almost exactly as predicted, and is expected to rise by a further 113kb/d in August to a new all time high of 5.585mmb/d.

A look at the productivity breakdown, reveals the following picture:

Looking beyond the immediate production horizon, over the weekend Goldman's commodity team predicted that "assuming the US oil rig count stays at the current level, we estimate US oil production would increase by 840 kb/d between 4Q16 and 4Q17 across the Permian, Eagle Ford, Bakken and Niobrara shale plays", a number that is slighly higher than the 835kb/d Goldman predicted one week ago. Goldman also notes that annual average US production would increase by 320 kb/d yoy on average in 2017. The yoy production would rise by 490 kb/d in 2017 if we account for the impact of the estimated remaining county-level well backlog being gradually brought back online between May and Dec-17."

And, as we said last month, this is bad news for OPEC, which continues to price itself out of the market by not only keeping prices high enough to make production profitable for US companies, but by allowing shale to capture an increasingly greater market share.

Worse news is that shale is just getting started: both the Energy Information Administration, OPEC and the International Energy Agency have chronically underestimated the contribution of U.S. crude oil supplies in their forecasts. As Shale River notes, each has significantly increased their estimates for 2017 U.S. crude oil production during the year, with recent upward revisions larger than prior increases. In fact, the EIA recently conducted its 11th consecutive upward revision of its 2017 estimate.

But the worst news - for OPEC yet again - is in the long-term, where if 5.5mmb/d is considered a record, just wait until shale hits more than double that amount, or over 12mmb/d, which Goldman expects will be achieved some time in the 2020s.

The reason: shale breakeven costs are dropping on a monthly, if not weekly basis, and which over the next 4 years Goldman expects will plunge to prices where US production will become competitive with the lowest-cost OPEC producers: Saudi, Iran and Iraq.

Impossible? The chart below showing the collapse in breakevens in the past 9 years suggests otherwise:

Here is Goldman:

 
 

We believe the Big 3 shale plays (Permian Basin, Eagle Ford Shale and Bakken) combined with Cana Woodford plays (SCOOP/STACK) and the DJ Basin can together drive on average 0.8 mn bpd of annual production growth through 2020 and 0.7 mn bpd of annual production growth in 2021-25. We see production plateauing towards the end of the next decade at present. Importantly, as described below, we  still see room for additional productivity gains; our estimates incorporate expectations for 3%-10% productivity gains per year through 2020.

 

While rest of the world is finding ways to move breakevens down towards $50/bbl WTI, we still see shale as the dominant source of growth and as a critical source of short cycle production. Our global cost curve from our recent Top Projects report shows continued decline in shale breakevens, though at a smaller pace vs. in past years. Outside of shale, we increasingly see industry – majors, national oil companies (NOCs) and governments – working to accommodate new projects that break even at $50/bbl WTI or less with a goal of becoming more competitive with shale. This largely is occurring through a combination of improved tax/royalty terms by host governments, more limited scale by producers (smaller projects that come online more quickly) and cost reduction/efficiency gains. We still see production from new projects falling off towards the end of the decade as a result of the reduction in investment after oil prices collapsed post-2014. As such, we expect shale will continue to be a critical source of marginal supply because shale along with OPEC spare capacity are the principal sources of short-cycle supply.

The bad news for OPEC is that it is trapped when it comes to oil prices: on the bottom by plunging state revenues and booming budget deficits, which spell out austerity, social instability and eventually revolution if prices are not boosted, and on the top by shale technological advances, which consistently reduce breakeven prices, and allow shale to stale market share from OPEC the longer prices are kept artificially high.

The solution, short-term as it may be at least according to Goldman, is that oil prices "need to stay lower for longer." That however is a non-starter with Saudi Arabia, which for obvious reasons, is rushing to IPO Aramco before math and physics finally declare victory over cartel-controlled supply, and oil prices crash. It remains to be seen if it is successful.

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Marcecamb's picture

Shale oil production? They pump in water inside old rigs and extract fossil oil? and in incredible quantities? Yeah, sure!

How about stop pretending that fantasy and admit you make fuel from water?

troubadourcapital's picture

Oil is making a long and complicated bottom in the $40 range

venturen's picture

and we are running out of oil and Nat Gas....good luck with that theory. Oil production across the world is going to skyrocket at technology just makes it easier to extract.  Btw we run out, we won't need any. Look at uses of oil for power producttion.....from millions to zero....and autos are going from oil to battery or nat gas. 

Oil is going to $30...like it should have...except criminal Goldman et al....manipulated the prices up! 

 

Remember the money to goldplate 747 in Saudi....comes from wasted money...that could be used to extract cheaper oil....Canada can supplanted Saudi as largest importer to the US and the USA is dropping importing countries one after to another.....what do you think it costs to extract oil in Iraq or Libya....

PleasedToMeatYou's picture

Isn't the Permian where that new extraction technology is being deployed?  It's supposed to be way, way more efficient and effective at facilitating otherwise difficult extraction than fracking. 

new game's picture

when the market is left to it's own devices this is what happens. now to keep the gov.org from fuking up yet another industry. subsidized green is soooo fuked up by gov.org and subsidies. solar and wind would die w/o taxed subsidies, remainingonly as cottage industries until 150 a bbl. oh well the libtards are saving the earth again, at your expense and allowing misdirected money to green scams. research it all and you will come  back to "markets left to their own devices" produce the best technology when the gov.org stays out. fuking period...

dirty fingernails's picture

If you like your toxic cesspool, you can keep your toxic cesspool. I'll take the enviroweenies any day over the Cuyahoga River alternative offered by Big Chemical

whatamaroon's picture

The pipeline infrastructure is already in place which helps lower the cost to market.

samsara's picture

And in the Fiq. 8    Graph of produciton ,  we see the left side of the Hubbert Curve...

Bill of Rights's picture

Shale drilling stock still suck the big one....

Ben A Drill's picture

Earthquakes are up this year as well.

Glyndwr will return's picture

20% overcapacity in virtually ever sector globally.

Interest rates only one possible direction.

Bubbles already bursting.

Shale has made no money since 2008. 

Shale is probably profitable at $200 - until then its all smoke and mirrors. I dont believe a word of this article

Dominus Ludificatio's picture

Today the devour the oil cake like unsatiable monsters  and tomorrow they will go hungry and look for scraps.

venturen's picture

actually tomorrow we won't need oil....good try...going to $30. Real capitalism is a bitch

silverer's picture

I haven't seen this much drilling since high school.

SelfGov's picture

Lifetime production from a shale oil well amounts to 10 minutes of fuel for the global economy.

In the time it takes to drill one of these wells, the world consumes 2000 X more oil than that well will EVER produce.

directaction's picture

Shale oil is us licking the very bottom of the barrel,

It'll be gone soon, a few years at most, and conventional oil production will exit the undulating plateau and enter terminal decline.

Then ALL HELL will break loose as the Four Horsemen saddle up and ride one final time. You'll see. An unbelievable horror is coming soon.

whatamaroon's picture

Well, the permian basin has been around for over a hunnert years and has pumped out billions of BBl of oil now it's just getting started so, peak oil might have to wait a few more centuries.

phaedrus1952's picture

Still early innings in the world of shale.

Lowered  costs, higher recoveries, more efficiencies will make the Powder River Basin and Uinta formations along with - potentially -theTusscaloosa Marine Shale and Rogersville future development sources.

Not mentioned in the article are the highly productive SCOOP and STACK areas in Oklahoma.

Ultimately, the stupendous amount of natgas in the shales will be the overriding story.

Marcecamb's picture

Thank to all of you who downvoted me. I just expresed in few words and devoid of any fony graphics what the "experts" say about the shale industry. They claim to pump in waters, chemicals and explosives and get oil and gas in exchange. They want you to believe that with that explanation, not me. Wake up, Neo!

MalteseFalcon's picture

Bitter oil investors out in force tonight.

It ain't the 1970s anymore.

Pasadena Phil's picture

Tyler, this is a GOOD thing! That is if we want the economic and political advantages that come from energy independence. It makes the global economy more stable, helps pay down the insane debt overhang and greatly reduces the risk of having to fight another war over oil. What do you so-called libertarians want anyway? Besides exterminating all Jews I mean.

Les Grossman's picture

According to ZH there is never anything good happening in the world (especially in the USA).

Tyler Durden (aka ABC media)  wants you to be in a state of constant panic and anxiety ....so they can continue to sell their click bait spots & google adware at higher prices.

Bwana's picture

Will someone who knows what they are talking about comment on the total US oil product and the total US oil consumption. It seems to me we are producing enough oil to satisfy our needs. We are or soon will be at 10 million barrels per day in production. What is our consumption?

Opinionsareus's picture

Oil is over - hang tight and start looking for opportunities to short

https://www.inverse.com/article/34239-how-many-solar-panels-to-power-the...