Take 10 minutes to look at these charts from Reuters: https://fingfx.thomsonreuters.com/gfx/c ... 02019).pdf
U.S. oil production has "flat lined" and will decline in 2020 unless there is a significant increase in the active drilling rig count, which won't happen unless there is a significant increase in the price of oil.
U.S. oil production has accounted for close to 90% of global production growth over the last three years. If U.S. oil production goes on decline, where will future global growth come from???
U.S. Oil Production Growth has STOPPED - Oct 1
U.S. Oil Production Growth has STOPPED - Oct 1
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: U.S. Oil Production Growth has STOPPED - Oct 1
BTW I send notes to John Kemp on a regular basis, but it takes a few months for "reality" to sink in over in London. The European economy is going to "hell in a hand-basket" (one of my mother's favorite saying that I never truly understood), so John's views are influenced by the European opinions on the U.S. and Climate Change. I forgive him for that. - Dan
By John Kemp
LONDON, Oct 1 (Reuters) - U.S. oil production growth is decelerating gradually in response to lower prices, which should reduce predicted over-supply in 2020 and force the global oil market back towards balance.
Domestic crude production fell 276,000 barrels per day to 11.806 million bpd in July, according to data published by the U.S. Energy Information Administration on Monday.
The month-on-month reduction was entirely attributable to the Gulf of Mexico, where output fell 332,000 bpd, because many offshore platforms were shut due to the threat from tropical storm Barry.
Onshore production from the Lower 48 states, much of it from shale plays, actually increased by 63,000 bpd to a multi-decade high of 9.778 million bpd ("Petroleum supply monthly", EIA, Sept. 30).
Even onshore, however, there were signs the frenzied production growth of 2017 and 2018 has run out of momentum, as shale firms throttle back in response to lower prices (https://tmsnrt.rs/2o8imVk).
Onshore output was up by 1.149 million bpd in July compared with the same month a year earlier, but growth has slowed progressively from 1.900 million bpd in August 2018.
Of the major oil-producing states, Texas has reported the sharpest and most consistent slowdown, with more gradual decelerations in New Mexico and North Dakota.
The second U.S. shale oil boom (2017-2018) is ending for much the same reasons as the first (2012-2014): high prices encouraged over-production and global oil consumption growth cooled.
Experience suggests changes in oil prices filter through to drilling with an average delay of around 4 months and to output with a total lag of around 12 months.
Production in July, therefore, reflected the relatively high prices that prevailed before oil prices started to slump in October 2018.
Since then, as prices have tumbled, the number of rigs drilling for oil has fallen by 175 or 20%, according to oilfield services company Baker Hughes.
Lower prices and drilling activity should start to filter through into even slower growth in Lower 48 output towards the end of the year and into 2020.
Prices will remain low to enforce a U.S. drilling and production slowdown unless and until there are stronger indications of economic growth next year.
By John Kemp
LONDON, Oct 1 (Reuters) - U.S. oil production growth is decelerating gradually in response to lower prices, which should reduce predicted over-supply in 2020 and force the global oil market back towards balance.
Domestic crude production fell 276,000 barrels per day to 11.806 million bpd in July, according to data published by the U.S. Energy Information Administration on Monday.
The month-on-month reduction was entirely attributable to the Gulf of Mexico, where output fell 332,000 bpd, because many offshore platforms were shut due to the threat from tropical storm Barry.
Onshore production from the Lower 48 states, much of it from shale plays, actually increased by 63,000 bpd to a multi-decade high of 9.778 million bpd ("Petroleum supply monthly", EIA, Sept. 30).
Even onshore, however, there were signs the frenzied production growth of 2017 and 2018 has run out of momentum, as shale firms throttle back in response to lower prices (https://tmsnrt.rs/2o8imVk).
Onshore output was up by 1.149 million bpd in July compared with the same month a year earlier, but growth has slowed progressively from 1.900 million bpd in August 2018.
Of the major oil-producing states, Texas has reported the sharpest and most consistent slowdown, with more gradual decelerations in New Mexico and North Dakota.
The second U.S. shale oil boom (2017-2018) is ending for much the same reasons as the first (2012-2014): high prices encouraged over-production and global oil consumption growth cooled.
Experience suggests changes in oil prices filter through to drilling with an average delay of around 4 months and to output with a total lag of around 12 months.
Production in July, therefore, reflected the relatively high prices that prevailed before oil prices started to slump in October 2018.
Since then, as prices have tumbled, the number of rigs drilling for oil has fallen by 175 or 20%, according to oilfield services company Baker Hughes.
Lower prices and drilling activity should start to filter through into even slower growth in Lower 48 output towards the end of the year and into 2020.
Prices will remain low to enforce a U.S. drilling and production slowdown unless and until there are stronger indications of economic growth next year.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: U.S. Oil Production Growth has STOPPED - Oct 1
From Stifel on 9-30-2019 (primarily focused on oilfield services)
We attended the Stifel Energy Tour in Texas last week where we met with companies across the energy value chain including upstream
E&Ps, midstream, downstream, oilfield services, as well as toured two of Gardner Denver's (GDI, Hold, $28.29) upstream facilities. We come
away from the trip feeling incrementally negative about the activity in the domestic on-shore market as well as an unexpected, in our view,
negative inflection in midstream activity in the Permian in the next 12 months.
Key Takeaways
FCF generation is front and center for E&P management teams. Institutional investor pressure on public E&Ps to return capital to shareholders
after years of under earning their cost of capital is putting pressure on companies to generate cash. This pressure is manifesting itself as
lower levels of capital spending by the E&Ps and lower activity levels in onshore basins. Drilling and completion costs are being squeezed and
growth is declining. Industry participants across the value chains believe capital spending for onshore, upstream O&G is steadily declining
through the back half of 2019 with 2020 spending levels likely down mid single-digits.
Oil pipelines out of the Permian are likely overbuilt and midstream is likely to face similar capital discipline pressures as E&Ps are currently
facing. After significant oil production growth and associated takeaway capacity constraints in the Permian earlier in the year, leading to a
wide Midland-Cushing WTI discount (Exhibit 3), it appears oil pipelines out of the Permian are now over capacity factoring in both forecasted
production and well declines. Several industry participants noted enough oil takeaway capacity out of the Permian for the next three years.
We note that there was concern from some participants that the capital discipline pressures E&Ps are currently facing is likely to impact the
midstream operators next. Outside of the overbuild in oil pipelines, natural gas takeaway constraints still remain with growth likely to help
offset some of the decline in new oil pipelines. Additionally, there was commentary around capacity constraints showing up at the dock and
moving barrels across the dock for export as well as new pipeline for refined product and natural gas liquids (NGL).
Working capital management for E&Ps is pushing DPOs up and restricting cash generation up the supply chain. Several E&Ps and service
companies stated that E&Ps are extending days payable to its service companies who in turn are managing this by pushing it up their own
supply chains. This is negative for our coverage who are further up the supply chain and are likely to see a negative headwind to their working
capital.
Industry consolidation is likely in the Permian with timing uncertain. In order to sustain a healthy level of capital returns to shareholders, several
participants across streams noted consolidation among E&Ps and service companies as a solution. Timing is uncertain with International Oil
Companies remaining patient and overall investor sentiment low.
We attended the Stifel Energy Tour in Texas last week where we met with companies across the energy value chain including upstream
E&Ps, midstream, downstream, oilfield services, as well as toured two of Gardner Denver's (GDI, Hold, $28.29) upstream facilities. We come
away from the trip feeling incrementally negative about the activity in the domestic on-shore market as well as an unexpected, in our view,
negative inflection in midstream activity in the Permian in the next 12 months.
Key Takeaways
FCF generation is front and center for E&P management teams. Institutional investor pressure on public E&Ps to return capital to shareholders
after years of under earning their cost of capital is putting pressure on companies to generate cash. This pressure is manifesting itself as
lower levels of capital spending by the E&Ps and lower activity levels in onshore basins. Drilling and completion costs are being squeezed and
growth is declining. Industry participants across the value chains believe capital spending for onshore, upstream O&G is steadily declining
through the back half of 2019 with 2020 spending levels likely down mid single-digits.
Oil pipelines out of the Permian are likely overbuilt and midstream is likely to face similar capital discipline pressures as E&Ps are currently
facing. After significant oil production growth and associated takeaway capacity constraints in the Permian earlier in the year, leading to a
wide Midland-Cushing WTI discount (Exhibit 3), it appears oil pipelines out of the Permian are now over capacity factoring in both forecasted
production and well declines. Several industry participants noted enough oil takeaway capacity out of the Permian for the next three years.
We note that there was concern from some participants that the capital discipline pressures E&Ps are currently facing is likely to impact the
midstream operators next. Outside of the overbuild in oil pipelines, natural gas takeaway constraints still remain with growth likely to help
offset some of the decline in new oil pipelines. Additionally, there was commentary around capacity constraints showing up at the dock and
moving barrels across the dock for export as well as new pipeline for refined product and natural gas liquids (NGL).
Working capital management for E&Ps is pushing DPOs up and restricting cash generation up the supply chain. Several E&Ps and service
companies stated that E&Ps are extending days payable to its service companies who in turn are managing this by pushing it up their own
supply chains. This is negative for our coverage who are further up the supply chain and are likely to see a negative headwind to their working
capital.
Industry consolidation is likely in the Permian with timing uncertain. In order to sustain a healthy level of capital returns to shareholders, several
participants across streams noted consolidation among E&Ps and service companies as a solution. Timing is uncertain with International Oil
Companies remaining patient and overall investor sentiment low.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group