U.S. oil production flat through Q3 2021 - Mar 8

dan_s · Post by **dan_s** » Mon Mar 08, 2021 11:52 am

Comments below are from BofA Equity Research

With crude soaring, how will US Shale respond ?
07 March 2021

OPEC+’s decision on Thursday to basically maintain production quotas through April has sent crude prices soaring , with front month WTI now at $67 /bbl and the forward 12-month NYMEX strip closing near $60. With oil prices back firmly back above pre-COVID levels, the question remains just how US Shale will respond. For this year, we do not expect that US Public E&Ps will alter their budgets too much, which are currently pointing towards flattish y/y spending. It ’ s the US Private E&Ps that will continue to respond to higher oil prices. But can they really move the needle?

US Private E&P rig activity is now at maintenance levels
We are very confident that US Private E&Ps will respond to higher oil prices. But while Private E&Ps currently account for 42% of US Hz oil rig activity, they actually accounted for just 28% (2.2MMbopd) of US Shale oil production in 4Q20. So this begs the question, will higher oil rig activity actually drive higher US oil production?
After running some analysis, it appears to us that US Private E&P oil rig activity , which sits at 101 today, has finally reached “maintenance” levels of activity. But, unlike many of the Public E& Ps, they aren’t stopping there, especially with oil prices where they are today.

Private E&P rig activity to reach pre-COVID levels by YE21
Given today’s strong oil prices, a return to pre-pandemic levels of 175 - 180 hz oil rigs for the Private E&Ps is looking increasingly likely by YE21. But what will this mean for their oil production? Our analysis suggests that holding at 175-180 hz oil rigs for 12 months would lead to Private E&P oil production growth of 0.5-0.6M Mbopd. That’s the type of oil production growth momentum that could build as we exit 2021 should oil prices remain here. So while the US Private E&Ps probably aren’t on OPEC’s radar just yet, they should probably start paying more attention to them