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Page added on July 28, 2016
Low Oil Prices Kill Off 7 Billion Barrels Of Oil Production
Capital expenditure cuts of $150 billion for 2016 and 2017 by U.S. exploration and production companies are expected to result in average production losses of 4.2 million barrels per day in the Lower 48 through 2020, according to Wood Mackenzie.
This is not only a trend in the U.S., with upstream companies around the world trimming capex by more than $370 billion for 2016 and 2017. Wood Mackenzie believes that this will impact oil production and the world will result in 7 billion fewer barrels of oil through 2020.
“The plays that saw the highest proportion of their capital expenditure cut were Eagle Ford and the Bakken,” said Jeanie Oudin, Wood Mackenzie Senior Research Manager, Lower 48. “That’s because the two plays were in full-scale development, with most operators’ acreage held by production at the time oil prices began to fall, allowing for a more responsive slowdown in activity,” she added, as quoted by Oil and Gas Journal.
While Bakken and Eagle Ford plays account for thirty-six percent of those cuts, the Midland and Delaware Basins have witnessed fewer declines in drilling activity.
“People expected that overall tight oil production would collapse when companies stopped drilling; however, it hasn’t collapsed, it’s only declined,” said Oudin. “Not only have operators built up a backlog of DUC wells, they are also utilizing longer laterals and enhanced completions to increase the productivity of wells as they bring them online. They’re just not adding new volumes as quickly.”
When the shale boom started, the output from the new wells dropped by 90 percent in the first-year itself. By 2012, North Dakota’s Bakken shale four-month decline rate reduced to 31 percent, and in 2015, the decline rate stood at only 16 percent for the same time frame, according to data compiled and analyzed by oilfield analytics firm NavPort for Reuters.
Similarly, in the Permian Basin of West Texas, the drop from the peak production through the fourth month of a new well’s life has improved from 31 percent decline in 2012 to 18 percent in 2015.
“We’re exposing more of the reservoir and breaking it up so we don’t get as sharp a decline,” Scott Sheffield, chief executive of Pioneer Natural Resources Co, a top Permian producer, told a recent energy conference, reports Reuters.
The recovery in crude prices from below $30 to $50 per barrel has led to an increase in the onshore oil active rotary rig count, as measured by Baker Hughes, which will lead to an increase in production from new wells after a few months, as shown in the chart below.
(Click to enlarge)
Nevertheless, the Eagle Ford rig count is still 60 percent below previous year’s numbers.
Higher crude prices have also encouraged companies with a strong balance sheet to announce large mergers and acquisitions (M&A). The average value of the deals stood at $182 million, in the second quarter of 2016, the largest since the third quarter of 2014, which further increased to $199 million for the seven deals announced in the first three weeks of July, reports the U.S. Energy Information Administration.
The largest among the deals was the $560-million purchase of Permian Basin leasehold interests by Diamondback Energy from Luxe Energy LLC.
If the recovery in oil prices continues in the second half of the year, a few companies are likely to revise their capex up, however, if prices again correct, this will deliver a blow to the improving sentiment across the industry.
By Rakesh Upadhyay for Oilprice.com
9 Comments on "Low Oil Prices Kill Off 7 Billion Barrels Of Oil Production"
Plantagenet on Thu, 28th Jul 2016 4:26 pm
Look like oil prices are headed back down. The huge amounts of oil in storage come onto the market as the price of oil rises (cotango), which in turn creates an oversupply.
The oil glut has a bit longer to run.
Cheers!
penury on Thu, 28th Jul 2016 5:58 pm
Looks more like the economy is headed down. One shortage of money in the hands of consumers equals one whole hell of a lot of unsold refined product. And that is how you create an oil glut. (only one of the ways)
Apneaman on Thu, 28th Jul 2016 7:04 pm
There is another 7 billion kill off right around the coroner.
Scorching Global Temps Astound Climate Scientists
As wildfire rages in California, flooding affects millions in India and China, and eggs are fried on sidewalks in Iraq, scientists say global climate catastrophe is surpassing predictions
“”Massive temperature hikes, but also extreme events like floodings, have become the new normal,” Carlson added. “The ice melt rates recorded in the first half of 2016, for example—we don’t usually see those until later in the year.”
Indeed, extreme weather events are currently wreaking havoc around the world.
In Southern California, firefighters are battling one of the “most extreme” fires the region has ever seen. The so-called sand fire had consumed 38,346 acres as of Wednesday morning and forced the evacuations of 10,000 homes, and one person has died.”
“Meanwhile, in India’s northeast, Reuters reported Tuesday that over 1.2 million people “have been hit by floods which have submerged hundreds of villages, inundated large swathes of farmland and damaged roads, bridges and telecommunications services, local authorities said on Tuesday.”
Reuters added that nearly 90,000 people are currently being housed in 220 relief camps.
“Incessant monsoon rains in the tea and oil-rich state of Assam have forced the burgeoning Brahmaputra river and its tributaries to burst their banks—affecting more than half of the region’s 32 districts,” the wire service reported.”
“An unusually heavy monsoon season has also devastated communities in northern China, AFP reported Monday, with nearly 300 dead or missing and hundreds of thousands displaced after catastrophic flooding hit the region.
And in Iraq, temperatures last week reached such unprecedented heights that a chef literally fried an egg on the sidewalk. The TODAY show tweeted footage of the incident:”
“Stateside, the heat dome continues to inflict scorching summer temperatures across the country. In one Arizona locale, for example, meteorologists are predicting a scorching high temperature on Wednesday of 114° Fahrenheit. One Arizona resident posted a video Tuesday desperately asking people to pray for the state as it faces more hot weather. “It is still six billion degrees,” the resident lamented. “Lord, we need you.”
Yet there appears to be little relief in sight: for the first time ever, USA Today reported Tuesday, the U.S. federal government’s climate prediction center is forecasting hotter-than-normal temperatures for the next three months for “every square inch” of the country.”
http://www.commondreams.org/news/2016/07/27/scorching-global-temps-astound-climate-scientists
https://youtu.be/__VQX2Xn7tI?t=18
Rick Bronson on Thu, 28th Jul 2016 8:56 pm
Regularly we read the news about the increase in Oil production because of
Shale drilling
Sands oil
OPEC’s increase,
but this piece of news is neglected.
67,000 + BEV (Battery Electric Vehicle) and PEV (Plugin Electric Vehicle) are sold in 2016-June.
And if you add the public transport vehicles like Trucks, Buses & Vans sold in China, then its 77,000 +.
These vehicles would have drastically cut the fuel consumption and this is also a reason for the decline in Oil prices. The more EVs we buy, the lesser the price of Oil.
http://ev-sales.blogspot.com/
http://insideevs.com/ev-sales-in-china-hits-record-44000-in-june/
Stabilizer on Thu, 28th Jul 2016 10:19 pm
So they are drilling tight oil horizontally and breaking up the formations. Hum, sounds like how they have always drilled those wells. The guy must have rolled on the floor laughing after telling that white lie
Kenz300 on Fri, 29th Jul 2016 4:00 am
The price seems to be dropping…………
Iran and Libya are bringing on more low cost production……….
Bankruptcies continue…………..banks have stopped lending……………
Deep pockets are less so………..
When will Canadian tar sands producers fold………they are the highest cost producers…….
Watch The Climate Change Ad Fox News Didn’t Want Its Viewers To See
http://www.huffingtonpost.com/entry/climate-change-ad-fox-news_us_57892a37e4b03fc3ee50c207?section=
Kenz300 on Fri, 29th Jul 2016 4:02 am
Electric cars, trucks, bicycles and mass transit are the future…..fossil fuel ICE cars are the past…………..
Think teen agers vs your grand father…………………. cell phones vs land lines…….
NO EMISSIONS……..climate change is real………
Save money……no stopping at gas stations…..no oil changes……..less overall maintenance……
Electric bus maker Proterra follows Tesla’s lead and open-sources its Fast-Charging patents | Electrek
http://electrek.co/2016/06/28/electric-bus-maker-proterra-tesla-lead-open-sources-fast-charging-patents/
Danlxyz on Fri, 29th Jul 2016 7:21 am
“When the shale boom started, the output from the new wells dropped by 90 percent in the first-year itself. By 2012, North Dakota’s Bakken shale four-month decline rate reduced to 31 percent, and in 2015, the decline rate stood at only 16 percent for the same time frame, according to data compiled and analyzed by oilfield analytics firm NavPort for Reuters.”
This explains why the production didn’t drop as fast as people thought it would.
I wonder if it effects the EUR.
Roger on Fri, 29th Jul 2016 10:46 pm
“When the shale boom started, the output from the new wells dropped by 90 percent in the first-year itself. By 2012, North Dakota’s Bakken shale four-month decline rate reduced to 31 percent, and in 2015, the decline rate stood at only 16 percent for the same time frame, according to data compiled and analyzed by oilfield analytics firm NavPort for Reuters.”
start – 90 percent in Y1
2012 – 31 percent in 4 mos is same as 93 percent in Y1
2015 – 16 percent for “same time” (4 mos?)
Only thing that changed was the price of oil. Wells choked back to avoid “giving it away” to the extent possible/doable.
No major increase in “efficiency” or “technology”, just simple economics…yet makes a good propaganda piece for Reuters…