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 The bad news is that - taken together - the declines they are
disclosing to investors appear milder than some analysts have
predicted.
According to a Reuters analysis based on forecasts from 18 U.S.
shale oil-oriented firms released over the past several weeks, from
global independent Occidental Petroleum Corp <OXY.N> to small
Denbury Resources Inc <DNR.N>, total oil and gas production would
fall 5.6 percent this year. The same firms saw output grow by around
a tenth last year.
Even excluding the eight larger companies with operations outside
the shale patch, where output is falling less quickly, production
would decline by about 6 percent, the data show. (Graphic: http://tmsnrt.rs/1KQZIGw)
In contrast, the U.S. Energy Information Administration is
forecasting an 11 percent drop in national production outside of
Alaska and the Gulf of Mexico, where output is expected to rise.
In broad terms, the data confirm a long overdue reversal for U.S.
firms that have kept production rising throughout much of the oil
price rout despite deep cuts in spending and drilling. On a monthly
basis, nationwide oil output has been ebbing - though very slowly -
since it reached a near 44-year high in April.
The decline has quickened after oil tumbled to $30 a barrel for the
first time in over a decade, with some companies leaving new wells
idle rather than opening up the taps after drilling.
Apache Corp <APA.N> would "rather leave those barrels in the ground"
and wait for prices to rebound than finish the fracking process,
Chief Executive John Christmann said last week. Apache expects
production, nearly two-thirds of which is onshore in North America,
to fall by 7 to 11 percent.
Yet the overall declines may still appear unusually shallow given
the scale of spending cuts.
Many producers are still managing to coax ever-more oil from each
new well, tempering the reversal in production even with only 400
drilling rigs deployed nationwide, one-quarter of the peak of 2014,
according to Baker Hughes data.
EOG Resources Inc expects to boost output from new wells in the
first four months by 50 percent for each foot it drills, chairman
and CEO Bill Thomas told analysts on Friday. EOG expects its oil
production to dip by only about 7.6 percent this year.
"The resilience (of U.S. shale) has been extraordinary, a tribute to
technical expertise," Neil Atkinson, head of the International
Energy Agency's benchmark Oil Market Report, said last week. The
agency expects U.S. production to rebound to record highs within
just a few years. "Anyone who believes the U.S. revolution has
stalled should think again."
EFFICIENCIES RUNNING OUT
Until this year, energy firms have been able to sustain output
thanks to increased efficiencies and more targeted drilling. In
December, shale powerhouse North Dakota pumped some 1.15 million
barrels per day, barely 2 percent below its April 2015 peak.
Now, the "precipitous" fall in rig count is beginning to outpace
efficiency gains, said Brian Kessens, Portfolio Manager at Tortoise
Capital Advisors. The anticipated declines show that there is a
limit to how much companies can squeeze out of their oilfields
without drilling and completing new wells.
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Whiting Petroleum <WLL.N>, the biggest producer in North Dakota,
last week forecast its output would drop by over 18 percent, the
most among the surveyed firms, as it set out to cut well completions
and slash its capital budget by 80 percent.
The only driller to anticipate an increase this year, Pioneer
Natural Resources, can do so largely because of its most
extensive hedging among shale firms. Concho Resources and
Halcon Resources Corp, which have also hedged substantial parts of
their production, both see output slipping by less than 5 percent.
All in all, output data so far and forecasts suggest this year's
declines will be relatively modest, raising questions whether the
retreat will be deep and long enough to support a sustained recovery
in oil prices.
"Non-OPEC supply needs to fall more broadly before the market gets
rebalanced and prices recover in a durable way," Raymond James
analyst Pavel Molchanov said.
STILL 'AMAZING'
While individual company forecasts offer the clearest view of supply
from those closest to the oil wells, in sum they are a less than
perfect gauge.
The companies in the survey represent only a portion of U.S. crude
production, which reached a near record of 10 million bpd last year,
and most offer no separate forecasts for crude oil, natural gas or
other related liquids. Privately-held companies, which do not report
forecasts, may get hit harder.
Projections from the half-dozen larger firms in the group are
bolstered by other large overseas or offshore non-shale projects,
which often produce crude for years without the need for new wells.
Marathon Oil Corp, for instance, sees a 6-8 percent decline in
overall output, but warned its big shale plays in the Bakken, Eagle
Ford and SCOOP areas would drop by the "low teens".
Occidental expects a 2-4 percent rise this year as overseas projects
offset a "slight" decline from domestic wells.
Yet its oil-rich Permian Basin shale properties, source of one-sixth
of its output, are still expected to pump more this year - even as
it cuts back to only two to four rigs.
"Every day, our teams amaze us with new drilling records, new
production records," Jody Elliott, Occidental's president of
domestic oil and gas, told investors.
(Reporting by Amrutha Gayathri and Swetha Gopinath in Bengaluru;
Editing by Jonathan Leff and Tomasz Janowski)
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