Shale production will NOT grow as fast as EIA forecasts

[dan_s]

As I have posted here MANY TIMES, EIA makes long-term forecasts based on short-term trends. As a result their forecasts are often wrong. IMHO there is ZERO CHANCE that U.S. tight oil production can meet future global oil demand. Now read this. - Dan

From Hart Energy: CERAWeek on March 7, 2018

HOUSTON—U.S. shale plays have recently moved production into record territory, but industry leaders speaking at CERAWeek by IHS Markit issued a few warnings during its run to the top.

Mark Papa, Centennial Resource Development’s CEO, expressed geologic concerns over prominent U.S. shale plays during a panel discussion March 6.

“I really view the Eagle Ford and the Bakken as approaching the point where they would soon be past their prime,” said Papa, who recently returned to the industry after his retirement from EOG Resources in 2013.

As certain assets in the Eagle Ford, Permian Basin and Bakken remain popular focal points of drilling, Papa said output will be threatened going forward. Though U.S. production growth has fostered many optimistic predictions, Papa argued that overactivity will hinder output more than expected moving forward to 2020.

“Out of those three plays, I think we’re approaching a sense of quality resource exhaustion in two of those plays [particularly] the Eagle Ford and Bakken,” Papa said. “A large percentage of the tier one geologic quality locations have already been drilled, and I would say 70% of the good geologic locations ("Tier Two") have already been drilled.”

For E&Ps moving forward in the popular plays, Papa said they are essentially getting the scraps because the remaining 30% of good rock will be drilled, leaving tier two and tier three rock that lacks quality. As a result, he said he expects a lot of capital to be pushed into the shale plays between 2018 and 2020.

But panelist Chris Carter, a managing director at Natural Gas Partners LLC, said he has seen growth from the Eagle Ford and Bakken since the downturn. Particularly, Carter said technology has impacted shale since that period. (FWIW, Chris is half of Papa's age)

“In the past three years we’ve roughly doubled the single well reserve recoveries from horizontal wells through longer horizontal laterals and through improved fracturing techniques,” Carter said.

With technology constantly improving, Carter is certain it will continue to spur opportunities for shale despite the hurdles Papa projects. Alongside innovation, the change in the cost curve for the U.S. makes up the foundation for Carter’s positive outlook on shale.

“We can build companies in core basins alongside great management teams and we aren’t reliant, nearly as much, on OPEC decision making as we were five or six years ago,” he said.

The forward curve for shale will see some constraints, Carter said acknowledging the timing delays from infrastructure seen in the midstream sector. Still, he insisted that he is a believer “having seen what this industry has accomplished in the past five years.”

“I think we’ll continue to see improvements along the margins,” he said.
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MY TAKE:
In addition to most of the Tier One leasehold being drilled out very soon, the "math" just does not work. We have well over 100,000 horizontal wells producing "tight oil" and we are completing 15,000 to 20,000 more horizontal wells in these oil plays each year. Tight oil wells come on very strong, but their production rates decline rapidly (~50% in year one). Therefore, eventually we won't be able to drill enough new wells to offset the overall decline rate. Add to that the fact that the U.S. conventional oil production is declining by 6% to 8% per year and you have a serious "math problem".

Horizontal drilling and modern completion technology is great, but eventually the formation pressure is depleted and no more oil can be pushed through the tight rock. BTW Mark Papa is not the only one saying the Bakken and Eagle Ford have already seen "peak production".

There are also midstream issue, which Chris acknowledged.

There is NO WAY the industry can meet the lofty EIA production forecasts unless oil prices keep going higher, making the Tier Two and Tier Three leasehold economic. There is plenty of oil down their, but the "cheap oil" has already been harvested.