CRAK - Winter Storm Drops U.S. December Oil Production
2023-03-06 09:55:00 ET
Summary
- All of the Crude plus Condensate (C + C) production data for the US state charts comes from the EIA?s February Petroleum Supply monthly (PSM) which provides updated information up to December 2022.
- 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.
- WTI appears to be making a strong bottom since the low of $71.02/b on December 9, 2022. Each successive low since then has been higher.
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 February Petroleum Supply monthly ( PSM ) which provides updated information up to December 2022.
U.S. December production decreased by 276 kb/d to 12,101 kb/d. For December, the state with the largest decrease was North Dakota with 135 kb/d followed by Texas with 65 kb/d while New Mexico had the largest increase, 46 kb/d. The December production decline was caused by bad weather in many states.
The dark blue graph, taken from the February 2023 STEO, is the production forecast for the U.S. from January 2023 to December 2024. Output for December 2024 is expected to be 12,805 kb/d which is lower than the November 2019 peak of 13,000 kb/d. From January 2023 to October 2024, production only increases by 193 kb/d.
The red OLS line from June 2020 to December 2022 indicates a monthly production increase of 54.3 kb/d/mth over that period. Clearly the growth rate going forward for 2023 and 2024, shown in the dark blue graph, is projected to be lower than the 54.3 kb/d/mth seen in the previous July 2020 to December 2022 period.
While overall US oil production decreased by 276 kb/d, the Onshore L48 had a smaller but similar sized drop of 264 kb/d to 9,870 kb/d in December. The light blue line is the STEO projection for output to December 2024 in the Onshore L48. From January 2023 to December 2024, output is expected to increase by 536 kb/d.
Oil Production Ranked by State
Listed above are the 10 states with the largest US production. These 10 accounted for 82.2% of all U.S. oil production out of a total production of 12,101 kb/d in December 2022.
On a YoY basis, US production increased by 497 kb/d with the majority, 561 kb/d having come from Texas and New Mexico.
State Oil Production Charts
Texas production decreased by 65 kb/d in December to 5,147kb/d. The decrease was due to freezing weather in Texas.
In October 2021 there were 215 Hz oil rigs operating in Texas. By December 2022, 322 Hz oil rigs were operational, an increase of 107 rigs.
After a short pause in November 2022, New Mexico’s production resumed its climb. December production added 46 kb/d to 1,770 kb/d, another record high.
The red OLS line from May 2020 to December 2022 indicates a production growth rate of 27.2 kb/d/mth and shows no sign of rolling over. Since August, the rig count has been steady in the high 90s, 97 ±4.
North Dakota’s December output decreased to 948 kb/d, a decrease of 135 kb/d from November. Extreme cold weather impacted production.
Alaska?s December output increased by 2 kb/d to 447 kb/d and was 4 kb/d lower than December 2021. This is an early indication that Alaska may be breaking out from the red declining downtrend line. Note how the summer lows are also higher.
According to this report , the Biden administration has agreed to advance the controversial Willow oil drilling project in Alaska. According to this source , “it’s the largest pending oil and gas project in the U.S., with expected production of 180,000 barrels of oil a day, and 600 million over 30 years. The Willow plan has passed every environmental analysis, would employ union labor and yield a revenue gusher. The final regulatory review was completed in early February, and it’s customary for the feds to give a final go-ahead within 30 days.”
“But the green left opposes Willow as a climate “bomb,” no matter that career scientists in federal agencies say. Willow completed its first federal environmental review in August 2020, only to watch a judge require another one. The Biden Bureau of Land Management (BLM) narrowed the scope from five drilling pads to three, and Willow recently passed another environmental review.”
Colorado?s December production decreased by 37 kb/d to 408 kb/d. Could be weather related .
Oklahoma’s output in December decreased by 26 kb/d to 418 kb/d. Production remains 58 kb/d below the post pandemic high of 476 kb/d.
From January 2022 to April 2022, close to 50 rigs were operating in Oklahoma. By late December 2022 the rig count had increased to 65.
California?s overall slow output decline trend continues. December production decreased by 3 kb/d to 325 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. November’s output reached a post pandemic high of 270 kb/d but dropped by 26 kb/d in December to 244 kb/d. The drop may have been weather related .
Utah’s oil production had been increasing steadily since January 2022. However, November saw a drop to 141 kb/d and December saw production unchanged at 141 kb/d. Utah had 8 Hz rigs operating in December, up from 5 in January 2022.
Louisiana’s output rose from the low of 63 kb/d in September 2021 to 104 kb/d in May 2022. Since then output has plateaued. November’s output decreased by 4 kb/d to 101 kb/d followed by a further drop of 7 kb/d to 94 kb/d in December.
GOM production dropped by 14 kb/d in December to 1,784 kb/d. If the GOM was a state, its production would normally rank second behind Texas.
The February 2023 STEO projection for the GOM output has been added to this chart and projects that output in January 2023 will spike to 2,005 kb/d. The large spike in January is due to the projected startup of the Vito platform.
However, Shell announced that the Vito platform had begun production on February 15, 2023. With an estimated peak production of 100,000 barrels of oil equivalent per day, Vito is the company’s first deep-water platform in the GOM to employ a simplified, cost-efficient host design.
The GOM spike will have to be moved back to February 2023 and the increase will be much less than the currently shown 221 kb/d .
For December 2024, output is expected to reach 1,958 kb/d. The production decline in 2023 is due to decline in existing GOM fields not being offset by the increases in crude oil production from new fields.
A Different Perspective on US Oil Production
The Big Two states, combined oil output for Texas and New Mexico.
December’s production in the Big Two states decreased by a combined 19 kb/d to 6,917 kb/d with Texas dropping 65 kb/d while New Mexico added 46 kb/d.
Oil production by The Rest
In December, production in The Rest dropped by 245 kb/d to 2,953 kb/d. January production is expected to show a recovery.
The main thing to notice in the Rest Chart is that current production is 1,005 kb/d below the high of October 2019. The question we need answered is “Is this a permanent loss that will never be recovered? ” I think it is a permanent loss.
Rigs and Fracs
Since the beginning of April 2021 through to the week ending July 29, 2022, the US added horizontal oil rigs at a rate of close to 3.76 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 wandered primarily sideways. A high of 572 rigs was reached on November 25, 2022. In the week ending March 3, 2023 the number of rigs decreased by 5 to 551, unchanged from July 29, 2022.
In the week ending March 3, Permian rigs dropped by 4 to 331 and Texas rigs dropped by 1 to 318. Note that Permian rigs are at the same level as July 1, 2022, 331 rigs.
For frac spreads, the general trend since late February 2022 can best be described as essentially flat around the 290 level but with a hint of a slow increase toward 300 frac spreads. At the beginning of the 2022 Thanksgiving and Christmas holidays, the frac count began to drop. The frac count bottomed in the week ending January 6 at 250 and then began to recover. A similar trend occurred last year.
For the week ending March 3, the Frac count increased by 4 to 276. Since January 6, frac spreads are being added at an average rate of 3.25 rigs per week.
Note that these 276 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 February DPR forecasts production to March 2023 and the following charts are updated to March 2023. The DUC charts are updated to January.
Above is the total oil production projected to March 2023 for the 7 DPR basins that the EIA tracks. Note that DPR production includes both LTO oil and oil from conventional wells.
The February DPR report made significant revisions to the January report. For instance, January output was revised down by 94 kb/d from 9,376 kb/d to 9,282 kb/d. The DPR is projecting that oil output for March 2023 will increase by 74 kb/d to 9,356 kb/d. March’s output is projected to be 150 kb/d higher than the March 2020 output of 9,206 kb/d. The pre-pandemic high was 9,292 kb/d in December 2019.
Over the last 4 months, production has been increasing at a rate of 83 kb/d/mth, which is lower than previously reported rates.
This high growth rate is more than double the rate of 35.7 kb/d/mth shown in the LTO report in the next section. It is not clear why there is such difference between these two reports .
This chart shows the monthly DPR production increments. What is notable is the reduced month to month volatility since December 2022. Is this another indication of a planned monthly drilling and completion program by company management to meet financial commitments, regardless of the price volatility of U.S. oil.
The other thing to note is that the monthly increases in the production rate is declining. February’s production increased by 81 kb/d while March’s increase was down to 74 kb/d.
Permian output continues to rise in March. Production is expected to increase by 30 kb/d to a new high of 5,682 kb/d. Production since September 2022 hints at slowing monthly increases, possibly more related to capital discipline than geology.
If the Permian were part of OPEC, at 5,682 kb/d it would be the second largest producer after Saudi Arabia. March output is 772 higher than the pre-pandemic high 4,914 kb/d.
During January, 437 wells were drilled and 433 were completed in the Permian. (Note that January is the latest month for DUC information). The completed wells added 370 kb/d to January’s output for an average of 856 b/d/well. The overall decline was 336 kb/d which resulted in a net increase for Permian output of 34 kb/d. Of the 433 completed wells, 392 were required to offset the decline.
Note, this is the first month in which no DUCs were used in the Permian, actually four were added.
This chart shows the average first month total production from Permian wells tracked on a monthly basis. Since October 2022, the volatility shown in prior months has been reduced. Assuming the latest information is correct, total monthly production from the newest Permian wells in March continues to be at the 370 kb/d level. Part of the flat production shown is related to an essentially unchanging number of wells being completed, currently hovering slightly over 430 for the last 4 months.
Average daily production for first month Permian wells also shows reduced volatility and indicates average production was 856 kb/d in January and appears to be stabilizing at the 850 kb/d level. Note that January is the latest month for reported completion data.
Output in the Eagle Ford basin has been showing an increasing trend since March 2022. More recent data indicates that it may be transitioning to a plateauing phase. For March, output is expected to increase by 4 kb/d to 1,180 kb/d.
At the beginning of the year, 43 rigs were operating in the Eagle Ford basin. As of January 2023, 68 were operational .
The DPR forecasts Bakken output in March will be 1,199 kb/d an increase of 21 kb/d over February. Production from September onward looks optimistic/wrong and increasing linearly. Considering the extreme weather that North Dakota experienced in December 2022, the increasing trend is incorrect. The EIA reported that December production was 948 kb/d while the DPR is reporting 1,133 kb/d for December .
Output in the Niobrara continues to increase slowly. March output increased by 5 kb/d and set a post pandemic high of 674 kb/d. It should be noted that the LTO report in the next section indicates no growth in output in the Niobrara basin .
Production increased due to the addition of more rigs into the basin. The Niobrara had 12 rigs operating in January 2022. By December 2022, the count had increase to 18.
Completions also increased. In January 2022, 67 wells were completed. By January 2023, monthly completions increased to 106, which accounts for the increasing production. During October and November, 112 wells were completed. Over the same period, January to January, the number of wells drilled increased from 87 to 128.
DUCs and Drilled Wells
The number of DUCs available for completion in the Permian and the four major DPR oil basins has fallen every month since July 2020 but that trend has now reversed. In December 2022 the trend for total DUCs changed from decreasing to increasing. January added 23 DUCs . The biggest increase came from the Niobrara where DUCs increased by 22.
In the Permian, the falling trend in DUCs also changed. December is the first month since mid 2020 when the number of DUCs increased. January Permian DUCs increased by 4 to 1,083 because 437 wells were drilled and 433 were completed.
In these 4 basins, 757 wells were drilled while 734 were completed for a net increase of 23 DUCs in January.
In the Permian, the monthly completion rate has been showing signs of slowing since the July high of 449. This is consistent with the frac spread chart shown above where there has been little to no growth in frac spreads since February 2022. The number of wells drilled in the Permian has been showing a slightly increasing trend since October.
In January 433 wells were completed, 2 more than in December and 16 fewer than in July. During January, 437 new wells were drilled, an increase of 4 over December. The gap between drilled and completed wells in the Permian has now essentially vanished. This raises a question. Since the producers would be completing the best wells, does this imply that most of the remaining 1,083 Permian DUCs are Dead DUCs ?
It also raises another question. Were those extra 4 wells that were drilled, DUDs that became dead DUCs?
January 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 February 2023 report updates tight oil production to January 2023.
This is the sixth LTO report published since it was updated due to operational issues. The current update has made significant downward revisions to production reported in the previous report.
According to the February LTO report, January’s LTO output increased by 57 kb/d to 8,022 kb/d. However, the December 2022 output was revised down to 7,965 kb/d from 8,188 kb/d reported in the previous report, a downward revision of 223 kb/d.
The red OLS line from March 2022 to January 2023 indicates a monthly production increase of 35.7 kb/d/mth.
January’s Permian output increased by 41 kb/d to 4,803 kb/d and is 504 kb/d higher than the high of 4,299 kb/d recorded in March 2020. The December 2022 output of 4,975 kb/d was revised down to 4,762 kb/d, a downward revision of 213 kb/d. Most of the revision noted above for the LTO Total output is due to the Permian revision.
The red OLS line from March 2022 to January 2023 indicates a monthly production increase of 33.8 kb/d/mth.
The Bakken’s December LTO output decreased by 4 kb/d to 1,053 kb/d.
The EIA reported that North Dakota December production was 948 kb/d, which is 109 kb/d lower than reported in the LTO report.
Production in the Eagle Ford basin increased by 9 kb/d in January to 1,001 kb/d and is now 13 kb/d lower than the post pandemic August 2020 high of 1,014 kb/d.
In January 2022, 43 rigs were operational in the Eagle Ford basin. By December 2022, the rig count had risen to 66.
Production in the Niobrara since October has shown little growth. Output has been flat at 437 kb/d.
Onshore L48 Conventional Production
Conventional oil output in the Onshore L48 dropped by 233 kb/d in December to 1,682 kb/d and is more in line with estimates prior to July 2022 . This estimate is based on a combination of the expected December LTO output and the actual Onshore L48 output reported by the EIA.
The big production drop from October is due to ongoing major revisions to the monthly LTO report. Note that the conventional oil estimate comes from subtracting two large numbers and is quite volatile month to month due to revisions.
WTI
WTI appears to be making a strong bottom since the low of $71.02/b on December 9, 2022. Each successive low since then has been higher. There is also strong resistance at the $82/b price. It will have to break above $82/b to indicate that a new uptrend has started.
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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Winter Storm Drops U.S. December Oil Production