Slowdown in oil production foreshadows the end of the «second shale revolution» in the United States

In the United States, the rate of growth in oil production has slowed, despite an increase in investment. EIA (US Energy Information Administration) is revising downward production forecast for 2017-2018. If it is, then we can say about «the end of the second shale revolution».

The US oil industry is recovering from hurricane seasons, one of which , Harvey, severely damaged the oil states of Texas and Louisiana. According to preliminary data from the EIA, oil production in the United States last month increased production in the country by 250 thousand barrels per day. compared to August, amounting to 9.3 million barrels per day. In September, the Gulf of Mexico produced 70 thousand barrels of oil per day. — up to 1.7 million barrels per day According to the short-term forecast (EIA), average production this year will amount to 9.2 million barrels per day. — 0.1 million barrels per day less than previously expected.

The EIA no longer believes that production in 2017 will reach a record level. Earlier, in connection with the rapid recovery of production during the «second shale revolution», the ministry’s forecasts expressed confidence that a record in oil production would be set this year.

According to the latest EIA forecast, a record should be expected in 2018. Next year, the average production level should reach 9.9 million barrels per day. — by 0.3 million barrels per day. more than in 1970, a record for the American oil industry. Earlier it was predicted that the average production in 2018 will be 10 million barrels per day.

Achievement of record indicators depends on the growth of shale oil production — primarily from the Permian Basin structure located in Texas and New Mexico. According to the latest data from Baker Hughes GE, 383 of the 748 rigs used for oil production in the United States are currently in operation on this structure. Production at the Permian Basin has been growing steadily since late 2016, the start of the «second shale revolution». Even after the collapse of oil prices at the end of 2014, production volumes at this structure did not slightly decrease. In September 2017, production at the Permian Basin reached 2.58 million barrels per day, which is more than a quarter of the total production in the United States.

American oil companies, including large ones, are actively investing in the development of the Permian Basin. Chevron said it will spend $ 4 billion next year on Permian Basin next year. Chevron Vice President Ryan Krogmeyer said at a conference in Singapore last month that the company will increase production from its Permian Basin licenses in the coming years. 400 thousand barrels per day Specialists of the second largest US oil company believe that production at this structure will increase by 1.4 million barrels per day by 2020. compared to the current level.

According to the forecast of the International Energy Agency (IEA), after two years of cuts in investments in exploration and production of oil, American companies are ready to reconsider their priorities. In 2017, investments in exploration of new fields and an increase in hydrocarbon production in the United States will increase by 53% compared to last year, which is incomparable with the costs of Russia and the Middle East, which will increase by only 4% and 6%, respectively.

Word and deed

The downward revision of the EIA’s production forecast and a 1.5-fold increase in investments run counter to statements by representatives of the American «shale companies» about constant cost cutting and increased production efficiency.

Permian Basin is declining such an important metric as added production per rig. In mid-2016, this figure reached 700 bbl / d, in October 2017, it dropped to 572 bbl / d. To maintain production growth, the Americans have to increase the volume of drilling operations much faster than previously planned.

In addition, oilfield service companies are forced to raise fees for their services — primarily drilling and hydraulic fracturing — in order to increase production profitability and avoid bankruptcy.

Bankruptcies continue

Increase in oil prices to 50 / bbl. and above did not stop a series of bankruptcies among American oil companies.

According to the American law firm Haynes & Boone, the number of bankrupt oil companies in the United States and Canada from the beginning of 2015 to July 2017 reached 128. The total debt of bankrupt companies to banks reached $ 79.27 billion, including 47.43 billion in unsecured loans. … At the same time, in January — July 2017, 14 companies went bankrupt, of which 7 were registered in Texas, where the Permian Basin shale structure is located.

More and more banks are changing their attitude towards «shale companies» and revising the conditions for granting loans. Some banks have even announced that they will stop financing projects with hard-to-recover reserves, such as shale oil.

On October 11, BNP Paribas announced the termination of cooperation with companies that are exploring, producing oil and gas in shale structures and / or tar sands deposits.

According to the latest data from the EIA, last week in the continental United States, where the main shale structures are located, production fell by 87 thousand barrels per day. — up to 8.977 million barrels per day Perhaps this is the aftermath of Hurricane Nate, but in recent weeks, the growth in US oil production has slowed to a minimum. If in the next forecasts EIA revises its production forecast downward, then we can confidently announce the end of the «second shale revolution».

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