Tuesday, July 21, 2015

Key Shale Crude Oil Production to Fall in August, Says EIA

Key shale crude oil production to drop
The EIA (U.S. Energy Information Administration) expects oil and gas production to slow down at some of the key shales by August. According to its Drilling Productivity Report released on July 13, 2015, the EIA expects key shale crude oil production to decrease at four key shales in August and increase at three others.

Overall, aggregate crude oil production at the seven key shales is expected to drop 3.1% in August compared to June levels. It’s expected to drop 1.4% in July. So the EIA expects the decline rate to go up.

Bakken may lose, Permian may gain
The Bakken, one of the major crude oil resource shales, is expected to see a decrease between June and August. The EIA estimates it will produce 1.18 MMbpd (million barrels per day) in August after producing 1.22 MMbpd in June—a 3.4% decrease. Oil production at the Niobrara shale, one of the smaller crude oil producing regions, is expected to fall the most—8.6% in the next two months.

The Permian Basin, the most prolific crude oil producing shale in the United States, is expected to increase production by a marginal 0.4% by August. According to the EIA, the Eagle Ford Shale may see a 6.3% reduced oil production.

The Utica Shale is expected to increase production the most, by 1.1% in the same period. Utica, however, has a much smaller oil production base than the Bakken shale and the Permian Basin.

How it will affect producers
Companies such as EOG Resources (EOG), Concho Resources (CXO), and Matador Resources (MTDR) may drive higher production in the Permian Basin. This would be positive for them. Reduced Bakken oil production could be led by producers such as Denbury Resources (DNR) and Continental Resources (CLR). This would be negative for these companies.

Changes in production and rig count in the key US shales will affect the performance of oil field service (or OFS) companies as well. These companies include National Oilwell Varco (NOV), RPC (RES), Dril-Quip (DRQ), and Core Laboratories NV (CLB).

Denbury Resources (DNR) forms 1.3% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).

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