Introduction

 

Update March 16. 2020

As explained in the initial introduction (see below) The main objective  of the present web site is to analyze the remaining oil production growth potential of the Bakken and Permian basins. Operator specific productivity trends, well production characteristics, production costs and  inventory analysis form the basis of the projections. 

After publishing the analysis, the Corona Virus surfaced. That will have a strong impact on the global economy and global oil demand in 2020. As a consequence, the OPEC-Russia misalliance collapsed. Russia was not willing to react appropriately to the expected  fall in global oil demand in 2020, presenting nonsensical arguments, and the Saudi Crown prince MBS, increasingly frustrated with Russia’s behavior, emotionally over-reacted and rushed to teach Putin a lesson.  MBS started another war at the expense of his country he may not win. Rationally, OPEC should have terminated the OPEC-Russia agreement and started acting in it’s own best economic interests, as in the past, ignoring Russia.

If we assume a $35/b oil price difference between a managed supply case and a free for all case, MBS’ decision would cause Russia an annual damage of $ 90 billion (7 MM bopd exports of crude + products) but the damage to his country would be higher at $ 120 billion per year (Aramco revenues less production costs) and the Saudi government budget deficit will increase to 55% (good bye to all of MBS’ reform plans) The other OPEC members who had not voted MBS’ oil flooding decision, will suffer a similar amount of severe damages.

The current Saudi strategy can only be sustained for a limited time.  US shale can’t be killed through unsustainable price wars, as the past has shown. Operators  will lay low until the madness ends. If they go into Chapter 11, they emerge stronger with reduced debt. In the end, it’s shale oil inventory capacity and quality that defines the top of US shale oil production.  The presented long term scenarios regarding Bakken and Permian production remain valid. In 2020 and probably 2021, shale oil well completions, related  IP30 numbers and production will be lower than assumed in these scenarios.   Adjusted scenarios for 2020 and 2021 are shown here.

Jan/Feb 2020

Between 2011 and 2019, US shale oil production growth has contributed the major part of global oil supply growth needed to satisfy global oil demand growth in that period.

The main purpose of the present web site is to quantify to which extend US shale oil production can continue to play that role in the 2019 to 2028 period – a period that is expected to see global oil demand growth of 10 to 13 MM bopd.

US shale oil production is essentially derived from 3 basins: Permian, Bakken and Eagle Ford. Eagle Ford production has visibly peaked in 2015 and is going nowhere since then. Consequently, the focus here is on the Permian and Bakken basins with Permian being the key basin.

To make plausible, well founded projections, in depth analysis of IP30 trends, well decline curves and quality distribution of inventories have been made and are presented on the present web site.  The analysis is based on databases containing detailed production data for all horizontal wells in the two basins. Operator specific performance data, that can’t be found elsewhere, are also shown.

The oil production scenarios until 2028 presented  here  (Bakken) and here (Permian) show that US shale oil production is losing its ability to fill a significant part of global oil demand increase in the future. Even in best case scenarios, with relatively high oil prices, shale production growth can satisfy –  temporarily – only 15% to 25% of  global demand growth expected until 2028.  The main reasons are well inventory exhaustion and the ever increasing number of new wells required to maintain production at the higher levels. Keeping oil prices low in order to fight US shale growth is like fighting yesterday’s war.

Even if Iran’s, Libya’s and Venezuela’s oil production returns to historic levels, with Saudi Arabia’s sustainable non reservoir damaging maximum capacity probably less than pretended, according to experts,  and with combined non OPEC and non US production essentially flat, by 2024-2025 the talk may not be about a global oil glut but about global oil shortage.

In that context, from OPEC’s perspective, the economically best strategy in 2014 would have been to cut back production by a few MM barrels per day for 6 to 7 years, to keep the oil price in the $ 80 to $ 85 range and simply wait until US shale oil production growth slows down for the mentioned structural reasons and can no longer satisfy global demand growth. A cut would have required that Saudi Arabia accepts to bear a more than proportional share, but it would nevertheless have been the largest beneficiary. Selling 8.5 M bopd at $ 85/b, compared to selling 10 M bopd at $60/b provides $ 40 billion per year in additional profits. For OPEC, involving Russia is not helpful as it complicates and slows decision making and Russia is not willing to contribute meaningfully to supply management anyway.  Russia’s oil policy is strongly influenced  by Rosneft’s Igor Sechin, a soviet era type apparatchik who can think only in production terms and who has Putin’s ear. Sechin thinks that oil prices have to be kept low to prevent US shale oil production from growing  and taking Russian oil market share – a reasoning that is flawed in regard of growing global demand and US’ shale’s relatively limited medium to long term growth potential. Economically, that strategy was never worth its opportunity costs. Considering that several research institutions expect Russia’s production capacity to reach a structural peak in 2022 before starting a long term decline makes Sechin’s logic even more absurd. It’s not US shale that will cause Russia’s falling market share. Mr. Sechin is also upset that US shale is benefiting from OPEC+ managed supply. He overlooks that Russia would benefit even more – income wise – and has benefited from OPEC’s managed supply for decades without contributing anything.

K. Francis