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US shale oil output decline set to accelerate in June by 197,000 b/d: EIA

Highlights

Voluntary producers' shut-in output accelerates

EIA revises May production estimates down 500,000 b/d

Houston — Declining US shale oil output is projected to slide further in June by 197,000 b/d to 7.822 million b/d, a drop of 15,000 b/d compared to what was expected last month, the US Energy Information Administration said Monday.

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Last month, the EIA forecast production to drop 183,000 b/d in May to 8.526 million b/d, but voluntary shut-ins by producers during the past several weeks have accelerated faster than expected.

Well economics have gone south in the wake of extremely low oil prices, and the majority of public and several private operators revealed in the last few weeks that they have curtailed at least some output.

The EIA has revised May production estimates to 8.019 million b/d, down more than 500,000 b/d.

In its most recent Drilling Productivity Report on Monday, the agency also said it anticipates Permian Basin oil output will dwindle more in June than it had anticipated last month. June production for the West Texas/New Mexico basin is expected to weigh in at 4.29 million b/d, down 87,000 b/d from May.

EIA last month expected a decrease for May of 76,000 b/d to 4.506 million b/d, but has revised Permian's May production to 4.377 million b/d.

PRODUCER GUIDANCE REFLECTED

"Clearly, we have reflected some of the guidance in our numbers" based on producers' first-quarter conference calls in the last few weeks, EIA analyst Jozef Lieskovsky said.

Domestic shale crude production had reached a landmark level of over 9 million b/d in March. But early that month, industry was dealt a double whammy: the global coronavirus pandemic kept eating into worldwide oil demand, and Saudi Arabia and Russia, unable to agree on crude production cuts, walked away from negotiations.

The pair later forged an agreement, but by then the world was glutted with an oil surplus and remains that way, although analysts are seeing signs some demand may be returning as new coronavirus cases slow and pre-pandemic activity resumes.

Oil production is forecast to be down month on month in June in five other large US basins but less dramatically than the Permian, EIA said.

Only Appalachia, which is largely natural gas-prone, is forecast to remain the same from May to June at 138,000 b/d of liquids.

BAKKEN MAY PRODUCTION REVISED DOWN

The Bakken Shale is forecast for a lesser production decrease in June than was forecast last month, despite producers in the North Dakota/Montana basin

shutting-in a third of all output.

EIA has pegged Bakken to drop by 21,000 b/d in June to 1.114 million b/d. That is less than the expected decrease of 28,000 b/d predicted in May.

Lieskovsky noted the agency had revised the Bakken's May oil numbers down by more than 225,000 b/d this month, from 1.361 million b/d to 1.135 million b/d.

Even so, "I was surprised by how sizeable some of the [shut-ins] were" by various producers, he said.

James Williams, president of WTRG Economics, said in many cases the wells that are shut-in appear to be newer high-producing wells that will have fewer problems when it comes to restarting them.

"It's not as easy to restore production from older wells," Williams said.

However, a number of producers claimed their shut-in wells were lower-margin vertical wells which typically are older than horizontal ones.

But many times operators don't want to produce their best wells into a low-priced market.

In addition, because newer wells generally produce more than older ones, producers don't have to shut down as many wells, Williams added.

"If wells are older than a couple of years, you'd have to shut down three to five times as many wells," he said. "So, it takes less labor and there are fewer wells to restart" if wells are newer.