BNO - U.S. August Oil Production At Post-Pandemic High

Summary

• U.S. August production increased by 102 kb/d to 11,975 kb/d.
• On a YoY basis, US production increased by 769 kb/d with the majority having come from Texas and New Mexico.
• Consumers are getting used to the currently higher oil product prices.

A guest post by Ovi

All of the Crude plus Condensate (C + C) production data for the US state charts comes from the EIA?s October Petroleum Supply monthly PSM which provides data up to August 2022.

U.S. August production increased by 102 kb/d to 11,975 kb/d. It should also be noted that July's oil production was revised up from 11,800 kb/d to 11,873 kb/d in the October report. So the total increase over the July report, including the revision, was 175 kb/d. For August, the state with the largest increase was Texas at 78 kb/d. August's production was a new post-pandemic high.

In general, the August report had a number of higher output revisions for many states. No explanation was provided. Could be just normal monthly revisions.

While overall US oil production increased, a clearer indication of the health of US production can be gleaned by looking more closely at the Onshore L48 states. In the Onshore L48, August production increased by 100 kb/d to 9,779 kb/d. This means that all of the increase in US production came from the Onshore L48.

The blue graph, taken from the October 2022 STEO, is the production forecast for the U.S. from September 2022 to December 2023. Output for December 2023 is expected to be 12,601 kb/d.

The red OLS line from June 2020 to August 2022 indicates a monthly production increase of 44.0 kb/d/mth over that period. The first portion of the red line stops at August because that is the range covered by the OLS analysis. The second portion is the same OLS line extended to see how well it fits the STEO forecast. The OLS extension closely follows the STEO forecast and indicates a continued steady increase in production at close to the same rate of 44 kb/d/mth out to December 2023.

Oil Production Ranked by State

Listed above are the 10 states with the largest US production. These 10 accounted for 82.0% of all U.S. oil production out of a total production of 11,975 kb/d in August 2022.

On a YoY basis, US production increased by 769 kb/d with the majority having come from Texas and New Mexico. Note that only North Dakota and California are producing less crude this year than a year ago.

State Oil Production Charts

Texas production increased by 78 kb/d in August to 5,096 kb/d, a post-pandemic high, from 5,018 kb/d in July. From March 2021 to August 2022, Texas production increased by 322 kb/d or at an average rate of 18.9 kb/d/mth.

In September 2021 there were 205 Hz oil rigs operating in Texas. By the last week of August 2022, 308 Hz oil rigs were operational, an increase of 103 rigs.

August's New Mexico production increased by 9 kb/d to 1,581 kb/d a new record high. From January 2022 to the end of May, close to 92 rigs were in operation in the New Mexico Permian. However, by August operational rigs increased by four to a total of 96 which is consistent with New Mexico's rising output. The recent production increase is due to more wells being drilled and more wells being completed than drilled.

North Dakota's August output dropped to 1,059 kb/d, a decrease of 6 kb/d from July. Note that this latest report revised July's output up by 31 kb/d to 1,065 kb/d.

Alaska?s August output decreased by 19 kb/d to 413 kb/d. An unexpected drop since typically August output increases.

Colorado?s August production decreased by 6 kb/d to 425 kb/d. After production being flat in March and April, production has entered a slow decline phase. A recent Colorado report forecasts little oil growth is likely in Colorado for 2022.

Oklahoma's output in August increased by 7 kb/d to 413 kb/d. From January to April, close to fifty rigs were operating in Oklahoma. In July and August, the rig count increased to between 57 and 59 which may lead to higher production.

California?s slow output decline continued in August. Output decreased by 1 kb/d to 333 kb/d.

Wyoming's oil production has been on a slow unsteady uptrend from the low of 220 kb/d in February 2021 due to increased drilling. August's output reached a new post-pandemic high of 257 kb/d.

Utah's production has been on a steady increase since January 2022. Production hit a new high in August of 138 kb/d after just adding 11 kb/d to June's output. Utah had between 7 and 8 rigs operating in August.

The Biden Administration paves way for a railway that will quadruple oil production in Utah's Uinta Basin.

According to this source , a new railway, "The Uinta Basin Railway is expected to quadruple oil production in Utah's Uinta Basin by linking its oil fields to national rail networks. Most of the crude will travel through the Colorado Rockies for 200 miles to Gulf Coast refineries."

Louisiana's output dropped in August to 101 kb/d.

GOM production increased by 21 kb/d in August to 1,783 kb/d. If the GOM was a state, its production would normally rank second behind Texas.

The October 2022 STEO projection for the GOM output has been added to this chart and the projects output will be 1,843 kb/d in December 2023, 60 kb/d higher than in August 2022.

For September 2022, the STEO is projecting a decrease of 41 kb/d to 1,742 kb/d, possibly associated with Hurricane Ian which hit the GOM in late September. November is projected to have a sharp production increase of 224 kb/d to 1,874 kb/d.

A Different Perspective on US Oil Production

The Big Two states, combined oil output for Texas and New Mexico.

Oil production by The Rest

August's production in the Big Two states increased by a combined 87 kb/d to a new high of 6,677 kb/d with Texas increasing by 77 kb/d and New Mexico adding 9 kb/d.

Over the past year, production in The Rest appears to be holding steady at close to 3,100 kb/d. In August The Rest increased output by 13 kb/d to 3,102 kb/d.

The main thing to notice in the Rest Chart is that current production is 900 kb/d below the high of October 2019. The question we need to be answered is "Is this a permeant loss that will never be recovered?

Rigs and Fracs

Since the beginning of April 2021 through to the week ending July 29, 2022, the US has been adding horizontal oil rigs at a rate of close to 3.82 rigs/wk, orange OLS line, and peaked at 551 rigs in the week ending July 29. However, since then the number of operational rigs has been more or less steady at the 550 level. In the week ending October 28, the number of rigs decreased by 3 to 560.

In the Permian and Texas, the general trend for the number of operational rigs since July has been flat. Is this related to the recent drop in the price of WTI?

For frac spreads, the general trend since late February can best be described as essentially flat around the 290 level but with a hint of a slow increase toward 300 frac spreads.

The essentially flat rig count since June and the flat frac spread count since February hint at a possible equilibrium between rigs around the 550 to 560 level and a frac spread count around the 300 level. This equilibrium could be driven by the new balance between drilling/completion expenses and the return of capital and dividends to investors.

Note that these 293 frac spreads include both gas and oil spreads.

Drilling Productivity Report

The Drilling Productivity Report (DPR) uses recent data on the total number of drilling rigs in operation along with estimates of drilling productivity and estimated changes in production from existing oil wells to provide estimated changes in oil production for the principal tight oil regions. The October DPR forecasts production to November 2022 and the following charts are updated to November 2022.

Above is the total oil production projected for November 2022 for the 7 DPR basins that the EIA tracks. Note that DPR production includes both LTO oil and oil from conventional wells.

The October DPR report has downwardly revised the April to October production forecast. The original production forecast for August 2022 was 9,069 kb/d, red markers. The revised estimate for August is 8,688 kb/d, a downward revision of 381 kb/d.

The DPR is projecting that oil output for November 2022 will increase by 103 kb/d to 9,104 kb/d. From April's output of 8,331 kb/d to November 2022, output in the DPR basins is forecast to increase by 773 kb/d or by an average of 110.4 kb/d/mth.

Permian output continues to increase in November. Production is expected to increase by 50 kb/d to a new high of 5,453 kb/d. From May to November, production is forecast to increase by 368 kb/d or at an average rate of 61.3 kb/d/mth. If the Permian were part of OPEC, at 5,453 kb/d it would be the second largest producer after Saudi Arabia.

During September , 416 wells were drilled and 430 were completed in the Permian. (Note that September is the latest data for DUC info). The completed wells added 378 kb/d to September's output for an average of 879 b/d/well. The overall decline was 300 kb/d which resulted in a net increase for Permian output of 78 kb/d. Of the 430 completed wells, 341 were required to offset the decline. The completion of 14 extra DUCs over the drilled wells contributed 12.3 kb/d of the overall 78 kb/d increase.

This chart shows the average total monthly production from the first month of Permian wells tracked on a monthly basis. Since July 2022, the volatility shown in prior months has stopped. While I cannot be certain of the reason for the reduced volatility, it may be related to the first upgraded LTO report released in September. Assuming the latest information is correct, total monthly production from the newest Permian wells may have peaked at 378 kb/d in August. Part of the decline shown is related to fewer wells being completed.

Average daily production for the first month of Permian wells is also volatile but the most recent data indicates average production is close to 879 b/d.

Output in the Eagle Ford basin has been showing an increasing trend since March 2022. For November, the output is expected to increase by 18 kb/d to 1,226 kb/d. At the beginning of the year, 43 rigs were operating in the EF. As of October, 67 wereoperational and account for the increasing production.

The DPR forecasts Bakken output in November to be 1,190 kb/d an increase of 22 kb/d over October.

This chart shows Bakken's output as reported by the North Dakota government. August production was unchanged at 1,031 kb/d and showing no sign of increasing production. The DPR Bakken chart above shows August production to be 1,075 kb/d, 44 kb/d higher due to the Permian basin in Montana. The trend in the two charts up to August is essentially the same. However, the DPR is forecasting increasing production in the coming months.

The projection for increased production may be due to this source indicating a steady stream of completed wells would increase production in September.

"There is a steady stream of newly completed wells, with a projection that September's numbers will continue to increase."

Output in Niobrara continues to increase slowly. November output increased by 6 kb/d to 646 kb/d.

DUCs and Drilled Wells

The number of DUCs available for completion in the Permian and the four major DPR oil basins has continued to fall every month since July 2020. Prior to July 2020 more wells were drilled than were completed. The last two data points show how the use of DUCs continues to slow and is further illustrated in the next chart.

According to this source , limitations on the ability to ship natural gas out of the Permian could affect crude oil production.

"From July 2020 to September 2022, the number of DUCs in the Permian region fell from to 1,103 from 3,590.

Meantime, because most natural gas from the Permian region is produced along with, and as a result of, crude oil production, limitations on the ability to ship natural gas out of the Permian region, known as takeaway capacity, could limit future crude oil production growth in the region, EIA said."

While this chart is titled "Excess of Completed Wells over Drilled", it could also have been called "Monthly change in DUC completion rate" because the excess of completed wells in a given month is equal to the change in the DUC completion rate.

In these four primarily oil basins, the change in the monthly completion rate of DUCs started slowing after peaking in March 2021. In September 2022, there were 3 fewer DUCs (2,546 to 2,543 as shown in the previous chart) than in August. This means that the number of wells drilled and completed was essentially in balance in September in these four basins.

However, in the Permian, the change in the monthly completion rate for DUCs has been unchanged for the last two months at 14. In September, the number of remaining DUCs fell by 14 (1,117 to 1,103 as shown in the previous chart). Note that since Permian excess well completions were greater than in all four basins combined, a few basins drilled more wells than were completed. For instance, in Niobrara, 126 wells were drilled and 111 were completed.

This chart shows that the completion of DUCs and the drilling of wells has stabilized in the Bakken, Eagle Ford, and Niobrara basins while the inventory of DUCs continues to drop in the Permian.

In the Permian, the monthly completion rate has been showing signs of slowing since the recent March peak of 450. This is consistent with the frac spread chart shown above where there has been little to no growth in frac spreads since February .

In September 416 wells were completed, 5 fewer than in August and 10 fewer than in July. During September, 430 new wells were drilled, a decrease of 5 over August and 20 fewer than in March. This is the second time that there was an MoM drop in drilled and completed wells. The gap between drilled and completed wells in the Permian has reached a new current low of 14, which is the same as reported in the previous chart.

October Light Tight Oil Update

The EIA's LTO database provides information on LTO production from seven tight oil basins and a few smaller ones. The October 2022 report updates tight oil production to September 2022.

This is the second LTO report published after it was updated because of operational issues. While the first report revised production down, a bit much it appears, this second report has revised production back up. It also appears to be more reflective of what is happening in the field because the latest monthly production increases/decreases appear to be in line with previous months.

September's LTO output increased by 44 kb/d to 7,870 kb/d.

The EIA's September LTO report made significant downward revisions to the production forecast published in the May report. The October report indicates the September downward revisions were overdone and have been revised upward. For instance, the August production rate reported in the September report has been revised up by 147 kb/d, from 7,679 kb/d to 7,826 in the October report.

The red OLS line from March 2021 to September 2023 indicates a monthly production increase of close to 35.1 kb/d/mth. The red line stops at April because it masked the green line. The analysis covered the whole period from March 2021 to September 2023.

September's output increased by 44 kb/d to 4,748 kb/d and is 447 kb/d higher than the high of 4,301 kb/d recorded in March 2020. Interestingly the Permian increase is the same as the total for the LTO basin.

According to this source , the Permian may have seen its best days. For Top U.S. Oil Producers, Permian Shale Output Is Losing Steam

The Bakken's September LTO output increased by 6 kb/d to 1,038 kb/d.

According to this source , there was a steady stream of completed wells that would increase September production.

"There was a "steady stream" of oil and gas drilling permit applications in August, he said. The drilling rig count continues to stall out in the mid-forties and is expected to do so for the rest of the year.

There is a steady stream of newly completed wells, with a projection that September's numbers will continue to increase."

Production in the Eagle Ford basin decreased by 5 kb/d to 925 kb/d in September. Eagle Ford appears to have entered a slow decline phase.

After increasing production from March 2021 to October 2021, output in Niobrara began to drop in November 2021. Production since April has shown little growth. September's output was unchanged at 446 kb/d and is up 2 kb/d from April.

As noted above, monthly production in the Bakken and Eagle Ford basins since October 2020 has been in a slow decline. The decline being addressed here is not the rapid decline associated with LTO wells. Rather it is the decline associated with the lower productivity of new wells along with reduced investment in rigs and frac spreads.

The above chart is the combined output from the Bakken and Eagle Ford basins since they are so similar. Using data from July 2020 to September 2022, the OLS line gives a combined decline rate of 6.8 kb/d/mth.

Onshore L48 Conventional Production

Conventional oil output in the Onshore L48 dropped by 10 kb/d in September to 1,786 kb/d and continued its decline from 1,877 kb/d which started in May. This estimate is based on a combination of the expected September LTO output and the October 2022 STEO report that has a September 2022 forecast for the US Onshore L48 output.

Production was essentially flat from June 2020 to June 2022. However, since May 2022, a decline may have set in.

A note of caution is in order. This chart is derived by subtracting two large numbers which are subject to revision, particularly the last two months, August and September. Since there was an increase of close to 150 kb/d in LTO over the last four months, that has resulted in a similar drop in conventional crude.

Non-OPEC Production

Non-OPEC oil production in June increased by 178 kb/d to 48,990 kb/d according to the EIA (Green graph).

Using data from the October 2022 STEO, a projection for Non-OPEC oil output was made for the time period July 2022 to December 2023. (Red graph). Output is expected to be 50,026 kb/d in December 2023. The July increase is expected to be 713 kb/d.

The projection shows that a post-pandemic peak will be reached in the September to November time frame. Note that this high of close to 50,300 kb/d is the high for all of 2022 and 2023 .

The red capacity decline line represents an average decline rate of 570 kb/d/yr for Non-OPEC countries over the four years since December 2019 and is a combination of the natural decline rate plus a possible reduction in exploration expenses and production/capacity investments.

Based on updated country data, the July increase of 713 kb/d will be provided by Brazil 155 kb/d, Canada 119 kb/d, Guyana 110 kb/d, Kazakhstan 214 kb/d, and Norway 311 kb/d for a total of 909 kb/d. Offsetting this increase will be Russia with a drop of close to 217 kb/d, for an expected net increase of close to 700 kb/d. The EIA World report will be out with July crude production in about a week.

World Production W/O US

June World oil production W/O US increased by 234 kb/d to 67,531 kb/d according to the EIA (Green graph).

Using data from the October 2022 STEO, a projection for World oil output W/O US was made for the time period July 2022 to December 2023. (Red graph). Output is expected to be 68,199 kb/d in December 2023.

This chart also shows World production W/O the US with a post-pandemic high occurring around September 2022.

The red capacity decline line represents an average two-point decline rate of 987 kb/d/yr for World W/O US over the period October 2018 to September 2023. This is the highest decline rate seen over this period, provided the forecast is correct.

US Product Supplied

This chart shows products supplied in 2019 compared to 2022. The year has been divided into 13 four-week segments. The last blue mark only represents the last three weeks. It does indicate that consumers are getting used to the currently higher oil product prices. Period nine shows an almost 2,000 kb/d decline in the product supplied. The current period 11 is only down by 600 kb/d. Sounds like the US economy is on the mend.

Original Post

Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.

For further details see:

U.S. August Oil Production At Post-Pandemic High