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BP questions pace of US tight oil growth as productivity fades

London — Productivity levels in the US' prime tight oil play began to fall last year, raising further questions over the sustainability of the current US tight oil recovery as constraints on the shale sector mount, BP's chief economist Spencer Dale said Wednesday.

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With US tight oil and natural gas liquids (NGL) production surging by almost 2 million b/d since late 2016, shale drillers have been forced to spread out from the most productive areas, or sweet spots, in their acreage, Dale said presenting BP's latest annual Statistical Review.

Tight oil well productivity has now flattened out in the Permian Basin based on initial output per completed well, he said. But tight oil productivity from the basin fell last year when measured by output per lateral foot of each completed well, Dale said.

"It does perhaps suggest that the very rapid increases in tight oil productivity that characterized much of the initial phase of the shale revolution may be beginning to fade," Dale said.

"More recently, increasing bottlenecks within the supply chain, together with signs that investors are becoming less willing to finance continued high levels of investment, suggest there may be some limits to the speed with which tight oil can grow going forward," he said.

Dale declined to draw conclusions on the implication for the growth outlook of US tight oil, however, noting that falling productivity does not suggest earnings in the shale oil sector will also take a hit.

"The idea that productively is starting to flatten off... as you move away from the sweet spots is not surprising, [but] this measure of productivity doesn't tell you anything about profitability," he said.

BP predicted in February that US tight oil will grow by around 5 million b/d to 2040, peaking at close to 10 million b/d in the early 2030s. The forecast, however, is consistent with the number of rigs remaining around current levels and productivity levels improving by around 40% over the next 10 years.

US shale oil production is widely expected to continue rebounding this year, after growing by 1 million b/d in 2017, as OPEC-led output cuts to support global oil prices saw prices hit $80/b last month.

But some market watchers have suggested a potential shortage of rig crews in the US, as well bottlenecks in supplies of raw materials needed to frack shale plays, mean there is a risk of oil prices rebounding higher if the US falls short of supply expectations from shale.