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US shale oil output to fall to 7.6 million b/d in July, lowest in 2 years: EIA


EIA trims June shale output to 7.725 million b/d

Oil production in all 7 major shale basins to decline in July

Rystad sees two-year backlog of DUCs added since February

Washington — US shale oil production will slip to 7.632 million b/d in July, down 93,000 b/d from June and the lowest in two years, the US Energy Information Administration said June 15.

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EIA trimmed its estimate for June production by 97,000 b/d from last month's outlook to 7.725 million b/d, according to its latest Drilling Productivity Report.

Permian Basin oil production is expected to fall to 4.27 million b/d in June, down 20,000 b/d from last month's outlook. EIA expects the West Texas/New Mexico basin to pump 4.263 million b/d in July, the lowest since May 2019.

US crude production from onshore shale basins peaked in March to just above 9 million b/d, before freefalling global oil demand from pandemic lockdowns and excess supply from Saudi Arabia and Russia tanked global oil prices.

Oil production is set to decline month on month in all seven major US shale basins in July, with Texas' Eagle Ford leading the declines on a volume basis. EIA expects Eagle Ford drillers to pump 1.173 million b/d in July, down 28,000 b/d from June and the lowest since August 2017.

Bakken production in North Dakota and Montana is expected to slip to 998,000 b/d in July, down 5,000 b/d from June and the first time below 1 million b/d since January 2017.

North Dakota regulators said June 12 oil production in the state may have bottomed out in mid-May with shut-ins topping 500,000 b/d. The state estimates current output at 925,000-970,000 b/d.

DUCs fall further

US drilled-but-uncompleted wells, or DUCs, fell to 7,591 in May, down 33 from April, EIA said in the same report.

The number of DUCs has fallen from a recent peak of 8,673 in May 2019, according to EIA data, as drilling and rig activity slowed in response to lower oil prices.

In contrast, S&P Global Platts Analytics estimates current DUCs at 5,065. The difference stems from the way DUCs are counted: Platts Analytics does not include so-called "retired" DUCs, which have waited on completion crews more than two years.

Platts includes only those that have just been drilled and are simply waiting for equipment to come onsite to complete the fracking, and DUCs that are deferred due to a poor price environment, pipeline constraints or operator strategy.

Once oil prices recovered from the downturn of 2015-2017, instead of drilling new wells, operators elected largely to first complete DUCs since they had already sunk 25%-35% of the total well cost in them. That is why some analysts believe DUCs may build during the current price downturn and operators may complete them toward year-end and build production momentum going into 2021.

But the US rig count, which dipped to a historic low of 299 last week, may not grow until next year, analysts say, adding increases may be slow to recover as operators more cheaply complete DUCs.

Andrew Cooper, an analyst for Platts Analytics, said rig counts should "return slowly" starting in early 2021 and return to pre-WTI crash levels in the low- to mid-800s by Q1 2023.

Rystad Energy said June 12 the slowdown in US fracking activity has added 750 DUCs in the past three months, the equivalent of a two-year backlog at the current pace.

"Usually there is a typical DUC buildup during winter months and a gradual drawdown during the spring and summer months," said Artem Abramov, Rystad's head of shale research. "Contrary to the norm, in the last three months this metric jumped to 15 to 25 months of frac activity. However, in the second half of 2020, we might see a modest rebound in fracking without extra drilling."