U.S. oil production can't go much higher - Jan 11

[dan_s]

Notes below are from Mercer Capital.
Bottomline: Outside of the Permian Basin, oil production is on decline in the other major U.S. oil & gas basins. The Ngas-to-oil ratio is also increasing in the Permian Basin. My take is that U.S. oil production will peak in 2025.
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Production and Activity Levels

Two of the three shale plays ended 2024 with production levels (on a barrels of oil equivalent, or “boe” basis) below those of the previous year. The DJ Basin ended the review period 2% below levels from a year earlier, while the Bakken ended at nearly 5% lower. Only the Woodford Shale ended the review period at a level above its November 2023 production, though at a negligible 0.1% higher.

DJ Basin
The DJ Basin’s production decline wasn’t unexpected in that, while at a high level, the DJ would seem to have adequate pipeline off-take capacity, two of the four primary pipelines were nearing capacity in early 2024. As such, it was known that basin producers had been pulling back on drilling activity (as evidenced by the declining basin rig count) and that production had been expected to reach a near-term peak during 1Q-2024.

Bakken
Bakken production was burdened by a similar headwind, albeit in the form of declining gas pipeline capacity availability. Although oil is still the Bakken’s primary economic driver, basin operators nevertheless must find markets for the associated natural gas and NGLs. Analyst basin forecasts indicate that the task is becoming more and more complicated as the basin’s production is progressively becoming “gassier” (as noted by Mercer Capital’s Andy Frew in his Valuation Insights Energy blog from January 3, 2025), thereby contributing to the tightening bottleneck at the off-take pipelines.

Woodford Shale
The Woodford Shale formation, which includes primary areas of the SCOOP and STACK, eked out the only year-over-year (YoY) increase in production — with an increase by the narrowest of margins. All three areas posted the usual winter weather-related declines early in the year. However, Woodford’s production recovery exceeded its prior review period high (posted in December 2023), which allowed its YoY production change to remain positive despite the steady decline from May to November.
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Most of the Permian Basin companies that I follow are reporting increasing gas-to-oil ratios.