Lower 48 to See Production Losses through 2020 on CAPEX Cuts
U.S. exploration and production companies have slashed $150 billion in planned capital expenditures (CAPEX) in the U.S. Lower 48 for 2016 and 2017, more than three times the amount of any single country, according to recent analysis by Wood Mackenzie. As a result, Wood Mackenzie expects the Lower 48 to experience through 2020 average production losses of 4.2 million barrels of oil equivalent per day.
The oil price downturn prompted upstream companies to cut more than $370 billion in CAPEX worldwide for 2016 and 2017. As a result, Wood Mackenzie expects 7 billion fewer barrels of oil equivalent globally through 2020. Seventy percent of these volumes will be lost from U.S. Lower 48 production through 2017.
Wood Mackenzie attributes the swiftness and scale of cuts made by U.S. operators in the Lower 48 mainly to shorter lead times and less capital-intensive nature of U.S. conventional resources. Thirty-six percent, or more than one third of U.S. CAPEX cuts made for 2016 and 2017, were made in the Bakken and Eagle Ford plays alone.
Jeanie Oudin, Wood Mackenzie Senior Manager, Lower 48, said in a July 21 press statement that operators were able to pull back on activity because the plays were in full-scale development, and most operators acreage was held by production at the time oil prices started declining.
Two Permian Basin plays – the Midland and Delaware Basins – stand out as two bright spots in the U.S. Lower 48, Wood Mackenzie stated. Smaller declines in drilling activity have occurred in these basins, partly because many of the rigs in these basins are concentrated in the best areas, and also because of the Permian’s stacked pay potential. According to Wood Mackenzie, the Midland and Delaware Basins hold the largest number of undrilled, low-cost tight oil locations.
The Permian Basin is set for explosive growth in the next few years, with Permian players possessing the best balance sheets, and the Permian having the most rigs, Pioneer Natural Resources Chairman and CEO Scott Sheffield said earlier this year. Sheffield said he believed the world would need Permian Basin oil production, but a long-term oil price of $60 per barrel is needed to grow Permian production.
While lower service costs and overall cost deflation also have contributed to spending declines, Lower 48 operators are cutting spending primarily through deferred investment. But tight oil production hasn’t collapsed as operators stopped drilling, it’s only declined, Oudin noted.
“Not only have operators built up a backlog of DUCs [drilled uncompleted wells], they are also utilizing longer laterals and enhanced completions to increase the productivity of wells as they bring them online,” Oudin explained. “They’re just not adding new volumes as quickly.”
Despite the worst oil price downturn in a generation, large and mid-sized U.S. independent producers are surviving and eyeing growth again as oil prices approach $50 per barrel, beating back OPEC’s attempt to sideline them by not cutting production.
Companies such as Pioneer credit improved fracking techniques for helping stabilize unconventional production. The slower declines of shale oil wells could help explain shale drillers’ resilience through the oil market’s two-year slump.
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Senior Editor | Rigzone