GGP: Assessing Shale Producers’ Ability to Scale-up Activity
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This is an excerpt from a Baker Institute Issue Brief originally published on January 1, 2017
The oil production targets agreed to at the November 30, 2016, OPEC meeting have created the firmest prospect in the past two years of a meaningful oil price recovery. Key producers’ adherence to those targets remains in question, but a perhaps more important issue is the degree to which nonOPEC production, particularly US shale, will respond if prices sustain at a higher level. Indeed, US crude oil production declined by about 1 million barrels per day from June 2015 to July 2016, revealing a rather elastic response to lower prices. But OPEC and other key global producers, including Russia, now face the question, “How fast can US shale producers scale-up their activity levels if WTI crude prices rise and stabilize in the $60/bbl range?”1
This brief addresses that question and highlights the challenges US unconventional liquids producers will likely face during a scale-up. It also points out price and timing inflection points likely to broadly influence industry decision-making. Fundamentally, US shale producers are likely to commence higher activity levels in two broad, pricedependent phases: (1) bringing online drilled but uncompleted wells (DUCs, in industry parlance); and (2) scaling up drilling and completions of new wells if WTI prices can stay at or above a sustainable level, most likely $60/bbl. That said, the manner in which costs respond to any uptick in drilling and completion activity will serve as a check on pace, and not all regions will see the same level of interest as prices climb. The Permian Basin is already adding rigs and will likely continue to see a majority of new interest, but as prices stabilize other plays such as the Bakken, Eagle Ford, and Niobrara will follow.
Gabriel Collins, J.D., Baker Botts Fellow in Energy & Environmental Regulatory Affairs, Center for Energy Studies Kenneth B. Medlock, III, Ph.D., James A. Baker III and Susan G. Baker Fellow in Energy and Natural Resources, and Senior Director, Center for Energy Studies
The statements, opinions and data contained in the content published in Global Gas Perspectives are solely those of the individual authors and contributors and not of the publisher and the editor(s) of Natural Gas World.