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US shale oil production to rise to 8.166 million b/d in January: EIA

Houston — US shale oil production in January is expected to rise 134,000 b/d month on month to 8.166 million b/d, the Energy Information Administration said Monday.

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January's expected growth is one of the more robust monthly increases of late.

In November, EIA predicted December's oil output would be 7.944 million b/d, an increase of 113,000 b/d month on month.

EIA also forecast monthly increases of 98,000 b/d for November and 79,000 b/d for October.

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Earlier in December, EIA raised its projection for this month to 8.032 million b/d, the first time the monthly average will have crossed the 8 million b/d threshold.

US oil production generally is weighing in higher than expected in recent months, surpassing earlier targets, as drilling has become progressively more efficient as operators continue to employ better technology to eke more oil and gas out of each well, EIA analyst Jozef Lieskovsky said.

The agency predicts 2018 production to average 10.88 million b/d, including 11.5 million b/d for the fourth quarter, and 12.06 million b/d next year. That compares with estimates of 10.79 million b/d for 2018 and 11.76 million b/d for 2019 just six months ago.

OIL OUTPUT CONTINUES TICKING UP

"[Industry has] also been able to get around the bottlenecks" in some basins, notably the Permian of West Texas/Southeast New Mexico, Lieskovsky said.

"And, well completions are coming a little stronger. We could probably take 100 rigs out and still keep up with the completions we're doing right now."

EIA eyes production in the Permian Basin at 3.8 million b/d in January, up 73,000 b/d, even though additional takeaway capacity is about full.

In addition, EIA forecasts oil production from the Bakken Shale of North Dakota/Montana at 1.461 million b/d, up by 18,000 b/d, and from the Eagle Ford Shale of South Texas at 1.427 million b/d in January, up by 19,000 b/d.

Both the Niobrara Shale and the Anadarko Basin should see their production rise by 10,000 b/d each in January, to 679,000 b/d and 599,000 b/d respectively, the agency said.

Also, Appalachian oil production from the Marcellus and Utica shales in Pennsylvania and Ohio should be up in January by 4,000 b/d, while Haynesville Shale oil output from northwest Louisiana/East Texas is estimated at 43,000 b/d, unchanged on the month.

Last week, a total 1,172 drilling rigs were drilling in oil and gas plays, up about 11% from the same week last year, according to S&P Global Platts Analytics data. Of last week's rigs, 80% were located in oil-weighted plays.

DOMESTIC DUCs NOW SURPASS 4,000

The number of actual domestic drilled but uncompleted (DUC) wells also rose in November, to 8,723, up by 287 from the previous month, EIA said. Of those, 248, or 86%, came from the Permian, where DUCs rose to 4,039 - a record level and the first time the number has surpassed 4,000.

Besides a lack of adequate basin takeaway capacity, operators are also building a well backlog, either because oil prices are lower - they have fallen about 30% in the last couple of months and now hover around the low $50s/b - or because they want to save them for late 2019, Lieskovsky said, when 2 million b/d or more is slated to begin coming on stream.

Also, drillers continue to refine their well completion methods, he said. Many are now drilling wells to different depths and only completing them later in batches and thus, timing could also account for some of the growing DUC backlog.

Even at oil prices in the low $50s/b, operators are able to make reasonable profits since they have pushed down breakeven levels for the largest plays to the low to mid-$30s/b. But 2019 still holds a lot of uncertainty as to activity levels and capital spending.

In a Sunday investor note following a trip last week to visit with oilfield service operators, Wells Fargo analyst Jud Bailey said he was "surprised" at what appeared to be "almost a complete absence of dialogue" between that sector and upstream companies.

"With a few exceptions, most service companies indicated very little discussions regarding 2019 programs and timing for budget/rig/frac crew re-deployment," Bailey said.

"Based on our experience and factoring in the multiple uncertainties hanging over the market, this lack of communication is likely to be followed by relatively disappointing news on the activity and pricing front in early 2019," he added. "What little guidance and dialogue [there is, suggests] any improvement in activity to be delayed until February or March" or beyond.

-- Starr Spencer, starr.spencer@spglobal.com

-- Edited by Annie Siebert, newsdesk@spglobal.com