US oil supply is forecast to increase by 1.41 mb/d, the largest among all non-OPEC countries, to average 12.63 mb/d. US total liquids output was pegged at 12.82 mb/d in August, 10 tb/d higher than in July. Preliminary data on the US liquids supply in the 3Q14 indicates an average of 12.85 mb/d. US supply growth is supported mainly by tight crude developments in Texas and North Dakota, as well as unconventional NGLs in the main shale gas fields. Production in the Gulf of Mexico (GOM) also rose by 0.26 mb/d y-o-y to average 1.44 mb/d, the highest level since January 2011, as maintenance was completed on projects such as Mad Dog. Growth was achieved as the absence of the large hurricane season that was predicted earlier by the National Oceanic and Atmospheric Administration kept disruptions to a minimum. Among the newly planned projects in GOM, the Cardamom project produced first oil in September, while the Tubular Bells project, with a capacity of 60 tb/d, will start up in the first week of November, with output ramping up to 25 tboe/d by the end of 2014.
Another project coming onstream during the next weeks is the Lucius project, slightly delayed from the October start-up, and, finally, the Jack/St. Malo project, which is expected to start up in December. The average output of GOM in the last eight months was 1.38 mb/d. It is expected that this level will increase in the coming months, with an expected addition of another 50 tb/d in the 1H15 as the aforementioned projects ramp up. Meanwhile, production in Alaska dropped to an average of 398 tb/d due to heavy maintenance at the Prudhoe Bay oilfield, indicating that production has been decreased by 148 tb/d, or 27%, since December 2013.
The key tight crude regions ? Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica accounted for 95% of domestic US oil production growth. According to data from the EIA’s Drilling Productivity Report for the three main tight plays in the US, the average new production of 92 tb/d between November 2013 to end of October 2014 in Bakken results in a net increase of output 22.8 tb/d. (This is the annual average new production minus legacy production change.) The Bakken region’s tight crude output averaged 1.19 mb/d in October, a m-o-m net change (increase) in production of 29 tb/d, with the average new-well oil production per rig reaching 537 b/d, which is 7 b/d m-o-m higher.
The Eagle Ford region’s tight crude output averaged 1.61 mb/d in October, a m-o-m increase of 35 tb/d with an annual net change of 31 tb/d. The average new-well oil production per rig reached 540 b/d, higher by 8 b/d m-o-m. And, finally, in the Permian region, the total crude output (which the EIA and OPEC assume to be tight oil, even though there was production at the site for several years before the shale boom in the US) is predicted to average 0.65 mb/d, while NGLs are expected to be at 0.11 mb/d in 2014.
The EIA’s estimated “Permian output” averaged 1.8 mb/d, a m-o-m increase of 42 tb/d against every 65 tb/d of production from new wells, with an annual net change of 19 tb/d. The average new-well oil production per rig in the Permian reached 176 b/d, higher by 4 b/d m-o-m. Based on their net changes of output, the Permian, Bakken and Eagle Ford sites – with 29%, 25% and 22%, respectively – are the most attractive tight crude plays in US.
Based on preliminary data as well as weekly progress in production of tight crude in September and October, there was a sign of slowing, but the m-o-m increase indicated the sharpest monthly growth in September and a slower pace in October despite the big drops in oil prices seen over the past few months. It is said that the sustained production growth comes as a result of key producers hedging the bulk of their 2014 portfolios. A material impact on output would only come if prices fell below $80/b and remained there for a sustained period (more than six months) of time. Most unconventional resources require continuous drilling to maintain or grow production levels. Since there are variable reservoir characteristics in different plays, even in different parts of the plays, the extrapolation of highly heterogeneous formations or highly homogeneous formations, or sweet spots, cannot be applied to the entire play or other similar formations in other locations. Hence, falling oil prices will have an inconsistent effect across US unconventional plays based on this assumption, creating a complex relationship between the acceleration of tight formation production and falling futures prices for tight crude. Oil prices above $80 per barrel will allow a lot of US tight crude activity to continue, but a further drop could have a remarkable impact on the oil market.