3rd June 2016

 The onshore rig count increased this week by 7, its first uptick since August 2015. With oil hovering around $50 per barrel, could life be set to return to U.S. onshore oil fields?  It may still be too early to call, but last week’s onshore rig count may have seen the bottom. 

OPEC, with a guiding hand from Saudi Arabia,  agreed to stick to its policy of not constraining oil production in the light of the market moving towards rebalancing on its own.  It also reached consensus on appointing Nigeria’s candidate, Mohammed Barkindo, as new secretary-general.

Many expected U.S. oil output would collapse under the weight of a lengthy price war with OPEC. The U.S. oil boom, fueled by the shale revolution, has obviously taken a few punches from OPEC's strategy of all-out pumping. However, the latest numbers show that U.S. production continues to remain more resilient (is declining slower) than expected in recent months despite the crash in crude price.

The U.S. pumped 8.773 million barrels per day in May, down by 90,000 barrels from the prior month, according to stats released this week by the U.S. Energy Information Administration. That represents a deceleration from recent monthly declines. By comparison, daily U.S. crude output dropped by 137,000 barrels in February and by 183,000 barrels in April.

Additionally, production from the Gulf of Mexico (GOM) could hit a record high in late 2017 or early 2018, up nearly 400,000 barrels per day from the start of 2015 reaching close to 1.9 million barrels per day and helping to offset declines from onshore shale production.

While not all GOM deepwater projects are going forward, with high cost green field projects being shelved until price recovers, some deepwater GOM projects have been maintained by lowering costs by tying new wells into existing production and infrastructure.

In 2017, developments are expected to start to slow with only two major projects due on line; both are tie-back developments to existing infrastructure. While GOM production outlook for the next two years is bright, the price down turn is expected to bring a drop off in output growth thereafter.

Exploration spending has dried up in deep-water GOM as operators slash capital expenditures to survive. Rig count has fallen from an all-time high of 63 in August 2014 to just 21 in May and dismal turnout at the March GOM lease round is another sign that interest in deep-water GOM has waned with oil price.

Weekly Recaps

Drilling Activity

The total number of active onshore rigs increased to 384, down 1,492 (~80%) from a November 2014 high of 1,876.  Across the three major unconventional basins, the oil rig total increased to 190 (up 5 last week), with Eagle Ford and Williston flat, and Permian up 5. The horizontal rig count increased to 319, up 5 last week.

Total U.S. rig count (including the Gulf of Mexico) stands at 408, up 4 last week, with rigs targeting oil up 9 for a 40-week total decline of 341.   The average weekly decline rate deceased and stands at ~8.5 oil rigs per week….the trend has reversed.

Oil Price

Brent, the global benchmark for oil, was up $0.30 to US$49.60 a barrel, reflecting a gain of 0.006% on the week.

WTI crude slid $0.63 to US$48.66 a barrel, down 1.3% on the week.

U.S. Supply and Demand

U.S. crude oil refinery inputs averaged 16.2 million barrels per day, with refineries at 89.8% of their operating capacity last week. This is 73,000 barrels per day less than the previous week’s average.

U.S. gasoline demand over past four weeks was at 9.7 million, up 4 percent from a year ago.

On the supply side, EIA data indicated that U.S. oil production in the Lower 48 was down 40,000 barrels per day, with total production at 8.225 million barrels per day. The past 19 week decline total stands at 494,000 barrels per day (an average of ~26,000 barrels per week).

U.S. crude imports averaged 7.8 million barrels per day last week, an increase of 524,000 barrels per day from the previous week.  Over the last four weeks, crude oil imports averaged 7.6 million barrels per day, ~8.3 % above the same four-week period last year.

Crude oil inventories decreased 1.4 million barrels from the previous week and persist at historically high levels. The crude stored at Cushing (the main price point for WTI) saw a decrease of 0.7 million barrels, total storage is 66.9 million barrels (~88% utilization).

Sources: EIA Weekly Update and GCA analysis




P Kevin Galvin

Facilities/Cost Engineer -

Bob George

Global General Manager -

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