The US Is Already The Swing Producer -- And The Most Responsive Producer -- February 15, 2018

Updates

February 16, 2018: without question, the linked article at the original post below may quite likely be the most important story of the month, if not the year. The writer opines that US crude oil production is likely to exceed what "everyone" is predicting. That opinion piece was written a couple of days ago. Today, this from The Street:

Oil companies targeting U.S. shale plays have largely surpassed expectations in 2017 in terms of production, Goldman, Sachs & Co. analysts said Friday, Feb. 16, and most notable among them are Occidental Petroleum Corp. and RSP Permian Inc. .

Overall, EOG Resources Inc. remains a leader in well performance in the Delaware Basin of west Texas and Eagle Ford Shale of south Texas, while Noble Energy Inc. has leading wells in the Delaware Basin and Denver-Julesburg Basin in Colorado.

But from a production rate of change perspective, others are more notable, suggesting the tides are shifting in some key U.S. resource basins.

Among those with leading well performance:

• OXY/RSPP and ConocoPhillips
• among those with below-average rates,  Anadarko Petroleum Corp. and  Devon Energy Corp. had favorable rate of change in the Delaware Basin, while Exxon Mobil Corp. saw below-average overall rates and rate of change in the Permian and the Bakken (on a lateral length adjusted basis)

Based on 2017 data available so far, Goldman saw eight key exploration and production companies, or E&Ps, that not only demonstrated peer-leading absolute oil IP rates in 2017, but also showed above-basin average year-over-year productivity gains. 

Other data points:

• OXY is doing particularly well from a financial point of view
• Occidental is well positioned from both an absolute and rate of change perspective in the Delaware Basin, which gives the analysts more confidence in the company's ability to increasingly be viewed as a leader in the play and potentially show above-guidance production in the second half of the year
• RSP Permian is the most productive E&P in the Midland Basin and the fifth most productive player in the Delaware Basin in 2017; this supports Goldman's view that it has the highest concentration of core acreage among smaller mid-cap Permian E&Ps

In the Bakken, the news was not so good for XOM:

• XOM lagged play play-level 2017 averages in the Permian (both Midland and Delaware) and in the Bakken
• based on 2017 data thus far, XOM saw degradation in well performance in the Delaware and Midland Basins and did not see meaningful improvement [year over year] in the Bakken, where strong annual improvement was seen by seers

Finally, this from Goldman:

"While we see shale productivity gains continuing through the end of the decade, we note: (a) the rate of improvement is likely to slow as activity picks up (reverse high-grading); (b) beneficiaries will likely become more concentrated to those capable of widely applying leading data analytics to shale portfolios which can better inform how wells are drilled/fracked; and (c) the emergence of cyclical cost inflation and risk of regional bottlenecks in 2018 owing to labor/logistics availability/timing."

Later, 11:51 a.m. CT: I posted the article and then read it as I often do. I scanned it first, and then read it line by line, highlighting throughout, re-paragraphing, and then archiving.

This may be simply the best article all week -- all month? all year? -- putting global energy into perspective. It touches on the US, Saudi Arabia, Russia, China, all in one very concise article.

A huge "thanks" to the reader who sent this to me. It's behind a paywall, but googling key opening phrase and it can be found in full.

If you have time to read but one article on global energy this week, this would be the article. 

When you read this article, imagine the headlines it would generate in the US if it were Russia or if it were China or if it were Saudi Arabia or Venezuela or Canada that were in the position that the US currently finds itself. This is an incredible story. It began with the Bakken revolution.

I have a lot of fun reading comments of "peak oil" proponents at other news sites and blogs and this article really has to give "peak oil" folks pause to think, assuming of course, they pause to think.

The interesting thing: for the most part this article is mostly about crude oil, and to some extent natural gas. But it doesn't even touch upon the other almost boundless energy source the US has if push comes to shove one hundred years from now: coal.

Also, not talked about in this article, the US is known for:

• keeping its promises when working energy deals and delivery contracts
• being politically stable
• being fair and balanced in the business world
• being very, very transparent

Of course, folks will dispute that, and take that out of context. "Fair and balanced"; and, "transparency" in the business world is relative. 

What a great entrepreneurial country.

Disclaimer: in a long note like this, there will be typographical and factual errors. In addition, I am having some difficulty seeing the screen due to glare from the sun. What a beautiful day in north Texas.

The other thing not mentioned in this article is how precarious the situation is in Saudi Arabia. I won't live to see it, but all indications are that Saudi Arabia will be a net importer of oil in less than twenty years, and unlike Russia, oil is Saudi's only source of revenue. 
 

Original Post

 

Richard Zeits opined on this (posted earlier) and RBN Energy has suggested much the same (posted at various times), so it's interesting to see the timing of this Financial Times article (sent to me by a reader, thank you):

US runaway crude oil production and total oil export growth is having dramatic impacts on global oil markets, positioning the US to be the major oil export hub in the world. No doubt there is much brouhaha over the US overtaking Saudi Arabia and Russia sometime this year as the largest crude oil producing country in the world.

But the fact is that it is already the world’s largest total producer of liquids, now marketing close to 15.5m barrels a day including crude oil, bio fuels and natural gas liquids.

By year-end, total US oil liquids output should be well over 50 per cent higher than either Russia or Saudi Arabia.

Also by this time next year, the US should add over 1m b/d not only to production, but also to exports, with total liquids exports at over 8.3m b/d, larger than either Russia or Saudi Arabia.

So much more at the article but that's all I will post. Will be archived, I'm sure.

By the way, this was the first comment to that article, from "A O Stahel,  a "peak oil" proponent:

Amazing how a seasoned analyst like Ed Morse can get it so wrong! 

There is only one central bank in the oil market and that is Saudi Arabia. 

They have set the floor at $60. Ed will learn that by December. And then there is record demand growth which in itself balances shale output growth. No word about that by Ed. 

But more importantly, the legacy pipeline of the $100 era is slowly drying up, creating an imbalance by 2019 and regardless of record shale growth. Only OPEC‘ spare capacity will be able to manage that short term. Lastly, the supply side has a natural decline rate which will sooner rather than later increase from 4 years of industry under-investment outside North America. 

All these factors matter to project future oil balances. 

Lastly, there is huge uncertainty among industry insiders about how fast and far US shale can grow, as discussed by Mark Papa or MIT, among others. Yes, shale will grow but by how much from here? Is 1.2 Mb/d yoy growth a starting point or its ceiling? It is a known unknown and so to state shale has become the swing barrel is premature, to put it mildly. 

In summary, to continue talking about record shale growth in isolation is a scary bias for a seasoned analyst. Time to read Daniel Kahneman‘s Thinking Fast and Slow!

My comments to that:

• Saudi Arabia has not set the floor at $60; the market will set the floor (earlier this week, oil was trending well below $60)
• Saudi Arabia cannot survive on $60-oil -- plain and simple
• US shale operators can survive with $40 oil; they will thrive with $75 oil; and, will go absolutely bonkers with $100 oil
• I'm a great admirer of Mark Papa and I take him seriously -- very seriously -- but I think he made his comments even before the full potential of the Permian was known -- but I could be wrong -- Mark Papa may have it right -- but the jury is still out 
• with regard to that "legacy pipeline of the $100-era is slowly dying out" has become a trope; it is a meme that has become meaningless; the individual commenting forgot to note that XOM reported its best year in a decade, perhaps in its history when it reported that it replaced 183% (almost replaced its production by 2x; reserves surged by 19%); and most of that was off-shore

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Water Boarding At Tutor Time