The Great U.S. Shale Industry Machine is finally running out of steam…
The Great U.S. Shale Industry Machine is finally running out of steam. What looked very promising for the shale industry in 2018 seems incredibly bleak this year. And, if the situation doesn’t turn around quickly for the shale industry, 2019 might turn out to be the year that production ultimately peaks in the United States.
There several factors that have negatively impacted the U.S. Shale Industry in 2019; the compounded annual decline rate, the massive debt–inability for shale companies to raise money, and the stunning amount of new wells necessary to increase overall production. While shale experts are knowledgeable of the typical 60-70% first-year decline rate of shale wells, not much is mentioned about the “compounded annual decline rate.”
The chart above shows that as overall Shale oil production increases, the decline curve becomes steeper. U.S. shale oil production in the top four fields hasn’t increased all that much because the nearly 6,000 wells brought online so far this year had to offset the stunning 2 million barrel per day decline from the production in 2018.
The next series of charts, from Shaleprofile.com, will show why the U.S. Shale Industry has hit a brick wall. The first chart shows the number of wells added each year in the top four shale fields:
The four top U.S. shale fields are the Bakken, Niobrara, Permian, and Eagle Ford. In 2017, the shale industry added 7,636 wells, 9,953 wells in 2018, and 5,924 wells by August 2019. According to Shaleprofile.com, there are still 82 wells not accounted for yet in 2019. So, the total for the first eight months of 2019 is 6,006.
If we look at the Well Profiles part of the chart, we can clearly see that when the increase in the number of wells in 2015 and 2016 started to taper off, overall production plateaued and declined. However, the currently well profile continues in the same trend, but production is leveling off. Now, while there will be revisions to the production data in 2019, I don’t believe it will alter the overall trend all that much.
The next chart shows the annual increase in shale oil production from these top four fields:
Overall, shale oil production from these four fields increased by 36% in 2017, 31% in 2018, and only 2% so far in 2019. Here are the totals for yearend and August 2019:
Top 4 Shale Field’s Production Barrels per day (bopd)
Dec 2016 = 3,686,893 bopd
Dec 2017 = 5,013,282 bopd (36%)
Dec 2018 = 6,573,042 (31%)
Aug 2019 = 6,729,273 (2%)
The reason shale oil production hasn’t increased all that much in 2019 is due to two factors:
- Optimized Enhanced Designs of Wells
- Insufficient Number of New Wells
Over the past few years, the shale industry increased the average well production considerably by drilling longer laterals, increasing the number of stages with higher pressures, and the amount of fracking sand and fluids. While this pushed production up significantly, the downside is that the decline rate becomes even more severe.
This next chart, including production ONLY for 2017, 2018 and 2019, shows that the Production Profile seems to be peaking even though the Well Profile heads up in the same trend:
Again, this chart is only showing the production for 2017, 2018, and 2019. Each color represents the production added each year. For example, the 7,636 wells brought online in these top four fields in 2017 peaked at 2,769,316 bopd in December and then declined to 727,795 bopd by August 2019. Thus, 2017’s shale oil production lost 2 million barrels per day in 20 months.
The 9,953 wells added in 2018 had peak production in December at 3,818,141 bopd and declined to 1,828,641 bopd by August 2019. What took 2017’s production 20 months to lose 2 million barrels per day, only took eight months for 2018’s production to lose the same amount.
This is the nasty side-effect of the COMPOUNDED ANNUAL DECLINE RATE.
For shale oil production to grow moderately this year in these four fields, the industry needed to add 11-12,000 wells. Unfortunately, if the industry continues with the current monthly well rate for the rest of the year, only 9,000 wells will be added in 2019, down nearly 1,000 wells from the previous year. Thus, if there isn’t an increase in the monthly well count for October through December, production will likely continue to weaken by yearend.
The U.S. Shale Industry hit a BRICK WALL this year, and if the situation doesn’t turn around shortly, we could be looking at the ultimate peak in production very soon.
IMPORTANT NOTE: This information is only for educational purposes. Do not make any investment decisions based on the information in this article. Do you own due diligence.
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