4th March 2016
The onshore rig count continued to decline this week, despite the WTI price trending higher. Overall rig count was down 10 (2%), while in the three key oil basins (Eagle Ford, Permian, and Williston) the decline was 10 oil rigs (a 4% decline).
26 Feb 2016 - Saudi Arabia’s View ... Only the Strong Survive
19 Feb 2016 - “The Invisible Hand” or an OPEC Deal ... Which One Will Govern Oil Supply
12 Feb 2016 - It’s Ugly Out There (Again!) …Despite Low and Declining Prices, LTO Operators Continue Drilling
A recent EIA study (Oil Production in Federal Gulf of Mexico) projected that federal offshore production in the Gulf of Mexico (GOM) would reach record highs in 2017, increasing from a 2015 level of 1.6 million barrels per day to 1.91 million barrels per day.
By contrast, the latest 2015 production reported from GOM producers to the U.S. Department of the Interior Bureau of Safety and Environmental Enforcement (BSEE) is 1.43 million barrels per day, which is ~170,000 barrels per day lower than the latest EIA February data. The difference could be because of timing of reporting or variation in data sources; however, the difference between the two sources concerning historical production figures is troublesome and highlights the difficulty with predicting a single production number.
In the EIA GOM report, production growth is from new projects and fields that either started producing in 2015 or are expected to start producing in 2016 and 2017. Ongoing budget cuts from various energy companies may have significant impact on timing of projects in 2016 and beyond. Among the six 2016 or 2017 projects listed by EIA in their report, some of the projects may be at a high risk of deferral or cancellation.
According to the most recent public data, Freeport-McMoRan has idled its three deep water drill ships that had been contracted for exploration and development projects in the GOM. This action, which is a direct result of the low oil price, implies that Holstein Deep and Horn Mountain Deep (two of the six projects listed by the EIA that are supposed to begin in 2017) may be deferred (60 Mboe/d combined). It will only take a few more of these types of changes to reverse the increasing trend of production identified in the EIA’s report.
The following graph illustrates the effect of using the BSEE 2015 exit production rate of 1.43 million barrels per day and delaying the two Freeport-McMoRan deep water GOM projects. The adjusted production rate implied by the February 2016 EIA STEO would peak at 1.74 million barrels per day, ~9% below the EIA’s forecasted peak production of 1.91 million barrels per day.
More importantly, looking at production in the next two years does not tell the full story for the U.S. GOM, especially deep water developments. While production in the region may or may not reach a record high in 2017, the trend of increasing production is not likely to continue past 2017 for two reasons.
First, persistently low oil prices suppress investment, which will make it more difficult to replace natural reservoir depletion, much less increase production. The halt on capital spending hits capital intensive projects, such as deep water development, particularly hard.
Second, competition to supply crude is intensifying between onshore shale and GOM production as some producers such as ExxonMobil, Chevron, and ConocoPhillips move away from offshore deep water exploration and development and focus near-term investments on U.S. light tight oil (LTO) assets. If crude prices become more volatile than before, it will be even more challenging for producers to develop long-lead, huge cash-out projects that take years to pay back investments.
The total number of active onshore rigs now stands at 473, down 1,413 (~75%) from a November 2014 high of 1,876. Across the three major unconventional basins, the oil rig total declined to 229 (down 10 last week), with Eagle Ford down 1, Williston down 3, and Permian down 6. The horizontal rig count is now 389, down 8.
Total U.S. rig count (including the GOM) stands at 489, down 13 last week, with rigs targeting oil down 8 for a 27-week total decline of 281. The average weekly decline rate now stands at ~10 rigs per week. GCA’s view is that oil rigs will continue to decline at ~2-4% per week until crude prices show significant improvement on a sustained basis (i.e., are less volatile).
Brent, the global benchmark for oil, was up US$1.56 to US$38.16 a barrel, reflecting an increase of 4% on the week.
WTI crude rose US$1.55 to US$35.45 a barrel, up 5% on the week.
U.S. Supply and Demand
U.S. crude oil refinery inputs increased 1% to an average of 15.9 million barrels per day, with refineries at 88.3% of their operating capacity last week.
On the supply side, EIA data indicated that U.S. oil production in the Lower 48 declined by 20,000 barrels per day, with total production at 8.568 million barrels per day. The past four week decline total stands at 135,000 barrels per day (an average of 34,000 barrels per week); the data continues to confirm that U.S. LTO production is in decline.
U.S. crude imports averaged 8.3 million barrels per day last week, an increase of 490,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged 7.8 million barrels per day, ~7% above the same four-week period last year.
Crude oil inventories increased ~10.4 million barrels from the previous week. Crude in storage at Cushing (the main price point for WTI) increased 1.2 million barrels, taking the total crude in storage to 66.3 million barrels (~91% utilization).
- U.S. Oil & Gas Monitor
- Latin America
- North America
- Asia-Pacific & China
- Middle East
- Russia & Caspian
We're here to help
Europe / Africa / Middle East
gaffney-cline & associates