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Drilling report adds to mounting evidence that US shale production is on rebound


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Drilling report adds to mounting evidence that US shale production is on rebound

It is said that a reversal in any trend is never made with one data point. However, recent figures and commentary from the oil and gas drilling and production industry suggests that a reversal in the trend of lower production may be upon us.

The latest installment of the "Drilling Productivity Report" published Dec. 12 by the U.S. Energy Information Administration showed that total output of natural gas across seven key shale plays is likely to increase 87.98 MMcf/d in January 2017 from December to reach 47.51 Bcf/d. From the same month a year earlier, production in January 2017 is anticipated to be up 166.22 MMcf/d.

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The increase in production is expected to be the first after four months of declines, but the recovery trend has been gaining momentum recently. The projected increase in January 2017 follows a contraction of 268.06 MMcf/d reported in October when the Permian was the only shale play that was projected to rise.

Commentary from executives during third-quarter conference calls suggested that green shoots of activity were beginning to be seen even from shale plays such as the Haynesville, which had been in a steady production decline since late 2011 and for a much longer time than the other shale plays.

Producers may also be encouraged by recent gains in prices, which have been prompted by a reduced production target from OPEC.

Revisions were small compared to the previous month's report with December's projected output revised up by 470.15 MMcf/d to 47.42 Bcf/d. The previous month's report included significant upward revisions due to continuous improvement in productivity, according to an EIA analyst. The record high in February of 48.18 Bcf/d was revised up to 48.23 Bcf/d.

The largest upward revision to the December estimate was made to the Nibrara region, where output estimates were raised 139.54 MMcf/d to 4.30 Bcf/d. The Utica Shale was boosted by 110.92 MMcf/d in December from the original report to 4.21 Bcf/d.

The EIA revises data as soon as confirmation is obtained that productivity is performing differently than it had in the past.

Production of natural gas is anticipated to rise in four of the seven shale plays, with Marcellus production jumping the most on a volume basis with a gain of 159.84 MMcf/d. Output from the Marcellus and Permian Shales advance the most on a percentage basis, with gains of 0.9% reported. The Niobrara and Haynesville were the two other shale plays where production is expected to increase in January 2017.

While shale resources and production are found in many U.S. regions, the EIA's drilling productivity report focuses on the seven most prolific areas, which are located in the Lower 48. These seven regions accounted for 92% of domestic oil production growth and all domestic natural gas production growth during 2011-14, according to the EIA.

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Production of crude oil is projected to rise 1.39 Mbbl/d sequentially in January 2017 to reach 4.54 MMbbl/d. The production figure for December was revised up by 44.00 Mbbl/d to reach 4.54 MMbbl/d. The rebound in January 2017 would follow five consecutive months of declines and 18 monthly declines in the past 21 months.

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In the preceding five months, the reductions in output reached 103.84 Mbbl/d in August and have narrowed in each consecutive month that followed.

Six of the seven shale plays showed reductions in August, while the Marcellus was unchanged. In January 2017, oil production is expected to rise in three shale plays including the gas-weighted Marcellus and Niobrara, as well as in the Permian.

On a volume and percentage basis, production in the Permian is projected to gain the most sequentially with a rise of 37.30 Mbbl/d, or 1.8%. Output from the Eagle Ford will fall the most on a volume basis with a decline of 22.84 Mbbl/d, while the Utica Shale will see production drop the most on a percentage basis with a loss of 6.0%.

The EIA's update of its drilled but uncompleted wells showed an increase of 64 to reach 5,218 wells in November from October. Figures for October were revised down by one well from 5,155 originally.

The Permian gained the most by adding 99 wells in November, while the Eagle Ford offset the gains with a reduction of 19 wells.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including power and natural gas index prices, as well as forwards and futures, visit our Commodities Pages.