www.eia.gov 

## U.S. Energy Information Administration Independent Statistics & Analysis 

# Tight Oil Production Trends in a Low Price Environment For EIA Conference June 15, 2015 | Washington, DC by Grant Nülle, Upstream Oil & Gas Economist Office of Petroleum, Natural Gas and Biofuels

# Outline • Effects low prices are having on U.S. oil production • EIA’s short-term outlook for production • Reasons why U.S. output may be more resilient than otherwise thought

Nülle | U.S. Tight Oil Trends, June 15, 2015 2

## U.S. oil supply: reasons for reduced output in the short term • Oil price decline • Reduced operating cash and capital expenditures • Falling rig counts • Corresponding decline in well completions • Global competition, rising world output

Nülle | U.S. Tight Oil Trends, June 15, 2015 3Year-over-year change

Source: Evaluate Energy 4

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Operating cash, capital expenditure, drops among onshore producers

-60% -40% -20% 0% 20% 40% 60% 80%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2011 2012 2013 2014 2015 WTI price Capital expenditure Cash from operations- 500 1,000 1,500 2,000 2,500

Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 $0 $20 $40 $60 $80 $100 $120 $140 $160 WTI Price US Onshore Rig Count Rig count Nominal dollars per barrel

Source: Baker Hughes, Federal Reserve Bank of St. Louis 5

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Rig count mirrors price drop, lagged by two to four months414 218 660 287 255 124 1,180 766 0 250 500 750 1,000 1,250

Jan Apr Jul Oct Jan Apr Eagle Ford Permian Bakken All Others
2014 2015 Well completions

Source: EIA estimates 6

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Reported well completions are falling as rig count dwindles-3% -2% -1%

0% 1% 2% 3%

Month1-05 Month1-07 Month1-09 Month1-11 Month1-13 Month1-15 Percent change from previous month

Source: US Bureau of Labor Statistics, Current Employment Survey (June 2015) 7

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## U.S. oil and natural gas production jobs showing month-over-month declinesGlobal oil production million barrels per day Stock change million barrels per day

Source: EIA, Short-Term Energy Outlook, June 2015 8

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Gap between global oil production and consumption signals increasing competitive landscape Forecast
-3 -2 -1 0 1 2 3 4 5 6
82 84 86 88 90 92 94 96 98 100
2010-Q4 2011-Q4 2012-Q4 2013-Q4 2014-Q4 2015-Q4 2016-Q4 Implied stock change and balance (right axis) Forecast World production (left axis)

# Production Trends & Outlook

9 Nülle | U.S. Tight Oil Trends, June 15, 2015

### Delays of several months between drilling, well completion, production, and administrative reporting Marked differences in reporting lag and frequency of reports among the states Recurring revisions months or years ago 10

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Data lags complicate understanding of turning points Drill a well Complete well & install infrastructure Report first production to the state Production added to state data Up to 1 month 2 months or more 2 – 4 months 1- 2 months or more0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
0 1 2 3 4 5 6 7 8 9 10

2000 2002 2004 2006 2008 2010 2012 2014 Rest of U.S. Oil Production Eagle Ford (TX) Bakken (MT & ND) Spraberry (TX & NM Permian) Bonespring (TX & NM Permian) Wolfcamp (TX & NM Permian) Delaware (TX & NM Permian) Yeso-Glorieta (TX & NM Permian) Niobrara-Codell (CO, WY) Haynesville Utica (OH, PA & WV) Marcellus Woodford (OK) Granite Wash (OK & TX) Austin Chalk (LA & TX) Monterey (CA) Tight oil % of total U.S. oil production million barrels of oil per day Tight oil production as a percent of total oil production

Sources: EIA derived from state administrative data collected by DrillingInfo Inc. Data are through April 2015 and represent EIA’s official tight oil estimates, but are not survey data. State abbreviations indicate primary state(s). 11

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Estimated U.S. tight oil production was 4.6 million barrels/day in May 2015 48% of total U.S. oil production(350) (150) 50 250 450
Month1-14 Month4-14 Month7-14 Month10-14 Month1-15 Month4-15 Month7-15 Production from new wells Decline from existing wells Net change Total month-to-month change thousand barrels per day

Source: EIA Drilling Productivity Report, June 2015 12

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Sum of seven DPR regions show production from new completions beginning to trail legacy declines starting in May 20150 2 4 6 8 10 12

2012 2013 2014 2015 2016 2014 2015 2016 Q1 Q2 Q3 Q4 Federal GOM Alaska Lower 48 production from wells drilled in 2013 or before U.S. monthly crude oil production million barrels per day

Source: EIA, Today in Energy 1/26/2015 http://www.eia.gov/todayinenergy/detail.cfm?id=19711 13

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## January 2015 STEO had Lower 48 y/y growth in 2015 of 502,000 bbl/d and in 2016 210,000 bbl/d.0 2 4 6 8 10 12

2012 2013 2014 2015 2016 2014 2015 2016 Q1 Q2 Q3 Q4 Federal GOM Alaska Lower 48 production from wells drilled in 2013 or before U.S. monthly crude oil production million barrels per day

Source: EIA, Short-Term Energy Outlook (STEO) June2015 14

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## June 2015 STEO shows U.S. Lower 48 y/y growth in 2015 of 720,000 b/d and a decrease in 2016 of 160,000 bbl/d.

# Resiliency of U.S. production

15 Nülle | U.S. Tight Oil Trends, June 15, 2015

## U.S. oil supply: reasons for rebound in US output • Quality of rig fleet • Growth in initial production rates • Increase in well completions • Falling costs • Continued capital availability • Ability to compete in global oil market

Nülle | U.S. Tight Oil Trends, June 15, 2015 16Source: Baker Hughes 17 Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Horizontal rig share rapidly increasing as vertical/directional rigs laid down at a faster rate Rig Type Running Rigs October 2014 Running Rigs May 2015 % Chg Horizontal 1,351 687 - 49% Vertical / Directional 574 202 - 65% Total 1,925 889 - 54%

## Increasing well productivity will help shore up production numbers • Analysis of 85,000 wells drilled from 2012 to 2014

– By vintage

– Horizontal, Vertical, Directional wells

– All U.S. onshore regions 

## • Average initial production (IP) rates increasing as the number of horizontally-drilled wells increases
Nülle | U.S. Tight Oil Trends, June 15, 2015 180 100 200 300 400 500 600 700 800

2012 2013 2014 Vertical Average Horizontal Initial production (first full month) Barrels per day per well

Source: EIA analysis of DrillingInfo data 19

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Permian shows rapid 30-day IP rate increases as share of horizontal wells grows from 13% to 33% of wells drilled in 2014Barrels per day

Source: EIA analysis of DrillingInfo data for 2014 wells 20

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## High IP rates driven by “core” Bakken counties

Well Count

## Inventory of “drilled but uncompleted” wells may add to production • Estimated 2,000 - 4,000 DUC wells in the Lower 48

– Equivalent to 6-10% of the 40,000 wells in 2014

– Predominantly located in the Eagle Ford, Bakken, and Permian 

## • Depending on actual DUC number and average well productivity thereof, hundreds of thousands of barrels per day could come online if all wells completed over the next 20 months • Stabilization of oil price makes added completions likely

– As prices have stabilized, there is a much greater incentive for operators to get wells completed to generate cash flow

– 1-year drilling permits may help facilitate Bakken well completions Nülle | U.S. Tight Oil Trends, June 15, 2015 21149 167 660 880
0 200 400 600 800
Jan Apr Jul Oct Jan 2015 2014 Well completions Uncompleted wells Well count

Source: North Dakota Department of Mineral Resources, EIA Estimates 22

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Bakken uncompleted well count growing as well completions decline- 50 100 150 200 250 300 350 400

- 500 1,000 1,500 2,000 2,500
Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Added Production Well Completions Completed wells Added production thousand barrels per day

23 Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Potential scenario of well completions and added production80 90 100 110 120

Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Drilling Oil & Gas Wells Support Activities Frac Sand 2013 2014 2015 Index Jan. 2013 = 100

Source: U.S. Bureau of Labor Statistics, June 2015 24

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Oil industry supplier cost reductions beginning to manifest in producer price indices Cost Index Oct. 2014 May 2015 % Chg Frac Sand 102.2 87.6 - 14.3% Drilling 113.9 93.1 - 18.3% Support 100.8 99.5 - 1.3%-0.90 -0.60 -0.30 0.00 0.30 0.60 0.90
-15 -10

-5

0 5 10 15
Free cash flow (left axis) Net share issuance plus net

change in debt (left axis) Net hedging assets (left axis) Long-term debt to equity (right axis) Cash-on-hand to short-term liabilities (right axis) 

### Select financial measures for 38 U.S. onshore producers 2013 Q1 2014 Q1 2015 Q1 Billion dollars Ratio

Source: Evaluate Energy 25

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Onshore producers have not had problems raising cash, but still have a high stock of debtDollars per barrel of oil equivalent

Source: Evaluate Energy, EIA Analysis 26

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## U.S. onshore companies are competitive on costs
$0 $5 $10 $15 $20 $25 $30 5-yr avg Finding & Development cost 5-yr avg Production cost U.S. onshore Global majors

# Summary • Low oil prices are adversely affecting the U.S. onshore oil sector • EIA’s short-term production outlook anticipates decline in tight oil production • Rig quality, well productivity improvements, and falling costs will help U.S. oil sector be more resilient amid period of low prices than otherwise thought
Nülle | U.S. Tight Oil Trends, June 15, 2015 27

# For more information • U.S. Energy Information Administration home page | www.eia.gov • Annual Energy Outlook | www.eia.gov/forecasts/aeo • Short-Term Energy Outlook | www.eia.gov/forecasts/steo • International Energy Outlook | www.eia.gov/forecasts/ieo • Today In Energy | www.eia.gov/todayinenergy • Monthly Energy Review | www.eia.gov/totalenergy/data/monthly • State Energy Portal | www.eia.gov/state

Nülle | U.S. Tight Oil Trends, June 15, 2015 28

# Supplemental slides

29 Nülle | U.S. Tight Oil Trends, June 15, 20150% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1995 2000 2005 2010 2015 Vertical Horizontal/Directional Percent of total running rigs

Source: Baker Hughes 30

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Horizontal/Directional rig share rapidly increasing as vertical rigs laid down- 100 200 300 400 500 600 700 800 900
2012 2013 2014 Vertical Average Horizontal Barrels/day

Source: EIA Estimates, DrillingInfo Data 31

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Eagle Ford shows slower 30-day IP growth as share of horizontal wells annually comprise 9 of every 10 wells drilled- 100 200 300 400 500 600 700
2012 2013 2014 Vertical Average Horizontal Barrels/day

Source: EIA Estimates, DrillingInfo Data 32

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## All other regions shows steady IP increases as share of horizontal wells grows from 34% in 2012 to 42% of wells drilled in 2014- 200 400 600 800 1,000
2012 2013 2014 Vertical Average Horizontal Barrels/day

Source: EIA Estimates, DrillingInfo Data 33

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Virtually all wells in Bakken are horizontally drilled, with average 30-day IP rate more than doubling since 2012Barrels per day

Source: EIA Estimates, DrillingInfo Data 34

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Eagle Ford IP rates indicate greater heterogeneity across counties

Barrels/day Well Count2014 4,248 Total Wells 1) SPUD Only 2) COMP Only 3) PRODUCING 26% 1,122

21% 887 53% 2,239 2013 3,706 Total Wells 1) SPUD Only 2) COMP Only 3) PRODUCING 62% 2,305 24% 875 14% 526 35 

## Analysis of Eagle Ford well activity shows increasing proportion of wells drilled or completed but yet to produce

Source: DrillingInfo April 2014 and 2015 Nülle | U.S. Tight Oil Trends, June 15, 20150 200 400 600 800 1,000 1,200 Bloomberg High Yield Corporate Bond Index Energy Materials Industrials Option adjusted spread (bps)

Source: Bloomberg 36

Nülle | U.S. Tight Oil Trends, June 15, 2015 

## Risk premiums have declined since crude prices stabilized, but remain higher than other sectors

## Contributing Factors to U.S. Tight Oil Production • Technical expertise and experience • Extensive transportation capacity • Price responsiveness of producers • Availability of capital • Regulatory stability • Learning-by-doing efficiencies gained by drilling thousands of tight oil wells

Nülle | U.S. Tight Oil Trends, June 15, 2015 37