artem abramov rystad energy february 27, 2018 · bakken permian eagle ford * includes horizontal...
TRANSCRIPT
Artem Abramov
Rystad Energy
February 27, 2018
U.S. oil production is set to grow by 2.7 MMBbld from Dec-17 to Dec-19
Source: Rystad Energy NASWellCube, Rystad Energy research and analysis
2
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19
Rystad Energy (Feb 17)
Rystad Energy (May 17)
Rystad Energy (Feb 18) Surpassing 11 MMBbld in early 4Q18
U.S. crude oil and lease condensate production forecast evolution
Million barrels per day
Surpassing 12.5 MMBbld in 4Q19
Rystad Energy Base Case:
WTI of 65 and 61 USD/Bbl
for 2018 and 2019 respectively
Main drivers of recent recovery are Permian, Bakken, Niobrara and Anadarko
Essentially flat development in Eagle Ford and Gulf of Mexico (net of seasonal effects)
-800
-600
-400
-200
0
200
400
600
800
1,000
Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17
Permian
Gulf of Mexico
Eagle Ford
Bakken
Niobrara & Anadarko
Other
Source: Rystad Energy NASWellCube, Rystad Energy research and analysis
3
Cumulative oil production change since April 2015 by basin
Thousand barrels per day
YoY (Dec-16) YoY (Dec-17)
+279 +726
+118 -20
-311 +63
-215 +256
-62 +229
-256 +0
Activity has been recovering strongly for 1.5 years
* Includes horizontal activity within Permian, Williston, Eagle Ford, Anadarko and Niobrara regions
Source: Rystad Energy NASWellCube
4
0
500
1000
1500
2000
2500
3000
3500
4000
4500
1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Drilled wells
Completed wells
U.S. Shale Oil: horizontal drilling and completion activity by quarter*
Number of wells
Drilling: 140% growth, 2Q16 – 4Q17
Completions: 80% growth, 2Q16 – 4Q17
Number of drilled uncompleted horizontal oil wells increased by 70% from mid-2016 to YE 2017
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17
Anadarko
Niobrara
Bakken
Permian
Eagle Ford
* Includes horizontal activity within Permian, Williston, Eagle Ford, Anadarko and Niobrara regions
Source: Rystad Energy NASWellCube
5
U.S. Shale Oil: evolution of horizontal DUC inventory, monthly
Number of wells
Abnormal DUCs have largely returned to their normal state
Some capacity bottlenecks have been recently observed in Texas plays
0%
10%
20%
30%
40%
50%
60%
70%
Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17
Eagle Ford
Permian
Bakken
Niobrara
Anadarko
* Includes wells which were spud more than 7 months ago
Source: Rystad Energy NASWellCube
6
U.S. Shale Oil: evolution of abnormal horizontal DUC inventory, monthly*
% of total DUCs
Average lateral length per completion by quarter and play
Feet
Typical lateral length has reached 7,000 feet in Delaware, STACK and Eagle Ford
Proppant intensity has stopped growing in all major plays recently
Source: Rystad Energy NASWellCube
Average proppant intensity by quarter and play
Pounds per foot
7
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Bakken
DJ Basin
Eagle Ford
STACK
Delaware
Midland
0
500
1,000
1,500
2,000
2,500
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Bakken
DJ Basin
Eagle Ford
STACK
Delaware
Midland
It is too early to talk about inflection points for well configuration and productivity
Several major prospective plays remain in early days of development
Source: Rystad Energy NASWellCube
8
0
2,000
4,000
6,000
8,000
10,000
12,000
12/7/2012 12/12/2013 12/17/2014 12/22/2015 12/26/2016 12/31/2017
Eastern Delaware Trend: well configuration learning curve
Lateral length (Y-Axis), completion date (X-axis), proppant per foot (point size)
Decline curves have been improving systematically for 5-6 years
Portfolio effect: play-level type curves do not reveal actual productivity improvements
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
Midland Delaware Eagle Ford Bakken
2011-2015 vintages 2016 2017
Source; Rystad Energy NASWellCube
9
First year oil decline curves for horizontal wells by production start year (median)
Barrels of oil per month
Bottom-line for well economics
Shale players can absorb significant service cost inflation if WTI stays above 60 USD/Bbl
0
10
20
30
40
50
60
70
80
AP
C -
Weld
County
FA
NG
- M
idla
nd N
ort
h
CLR
- B
akken C
ore
PX
D -
Mid
land S
outh
NB
L -
Weld
County
BH
P -
Eagle
Ford
Ea
st
WP
X -
Bakken
Core
MT
DR
- D
ela
ware
NM
RS
PP
- M
idla
nd N
ort
h
PE
- M
idla
nd S
outh
CH
K -
Ea
gle
Fo
rd C
entr
al
HK
- B
akke
n C
ore
SR
CI -
We
ld C
ounty
EO
G -
Eagle
Ford
East
CX
O -
Mid
land N
ort
h
BB
G -
Weld
County
XO
G -
We
ld C
ounty
CO
P -
Eagle
Fo
rd E
ast
EO
G -
Dela
ware
NM
EC
A -
Mid
land N
ort
h
PX
D -
Mid
land N
ort
h
ME
W -
Dela
wa
re N
M
CP
E -
Mid
land N
ort
h
CH
K -
Ea
gle
Fo
rd W
est
XO
M -
Mid
lan
d N
ort
h
CH
K -
ST
AC
K
EC
A -
Eagle
Ford
Ea
st
CV
X -
Mid
land N
ort
h
EO
G -
Eagle
Ford
Centr
al
AP
C -
De
law
are
TX
DV
N -
ST
AC
K
SM
- M
idla
nd S
outh
ER
F -
Bakken C
ore
NF
X -
Bakken C
ore
ST
O -
Bakken C
ore
AL
TA
- S
TA
CK
EO
G -
Pow
der
Riv
er
EP
E -
Mid
land S
outh
EO
G -
Dela
ware
TX
CX
O -
Dela
ware
TX
PD
CE
- W
eld
County
MU
R -
Eagle
Fo
rd E
ast
MR
O -
Eagle
Fo
rd C
entr
al
EO
G -
Bakken C
ore
DV
N -
Dela
ware
NM
LP
I -
Mid
land S
outh
CX
O -
Mid
land S
outh
QE
P -
Bakken C
ore
CO
P -
Bakken C
ore
CR
ZO
- E
agle
Fo
rd C
entr
al
IQ Range
Median
* Includes acreage positions with at least 50 horizontal oil well completions in 2016-2017, which produced for at least 4 months (for breakeven price validation purposes)
Source: Rystad Energy NASWellCube Premium
10
WTI breakeven oil prices in 2016-2017 for 50 most commercial acreage positions with significant current activity*
Dollars per barrel
History
Recent recovery has moved base decline towards all-time high level by YE 2017
3.1 MMBbld needs to be offset in 2018-2019 to maintain flat production…
0
1,000
2,000
3,000
4,000
5,000
6,000
Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19
2017
2016
2015
2014
Pre-2014
Source: Rystad Energy NASWellCube Premium
11
Base production as of .. December 2014 December 2015 December 2016 December 2017
Decline 12 months (MBbld) -2,319 -2,069 -1,567 -2,294 (E)
Decline 12 months (%) -50% -46% -37% -39% (E)
Decline 24 months (MBbld) -3,031 -2,609 -2,118 (E) -3,144 (E)
Decline 24 months (%) -66% -58% -49% (E) -54% (E)
U.S. oil production from horizontal wells by production start year
Thousand barrels per day
Forecast
... current activity level is already sufficient to offset base decline
Horizontal oil production is set to grow by 2.8 MMBbld (Dec-17 to Dec-19)
Source: Rystad Energy NASWellCube Premium
12
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2019
2018
2017
2016
2015
2014
Pre-2014
History Forecast
U.S. oil production from horizontal wells by production start year
Thousand barrels per day
Such growth requires only 45% increase in completion activity from 4Q17 to 4Q19
Upside is limited amid pressure pumping and proppant supply constraints
Source: Rystad Energy NASWellCube Premium
13
0
200
400
600
800
1000
1200
1400
1600
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2019
2018
2017
2016
2015
2014
Pre-2014
Spudded wells (RHS)
Completed wells (RHS)
History Forecast
U.S. oil production from horizontal wells by production start year and monthly horizontal activity (RHS)
Thousand barrels per day Number of wells
Price elasticity of short-term shale production forecast is significant in 50-70 USD/Bbl range
1.6 MMBbld difference for Dec-19 between WTI@50 and WTI@70 scenarios
Source: Rystad Energy NASWellCube Premium, Rystad Energy research and analysis
14
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Jun-19 Dec-19
New production (WTI@70)
New production (RE base case)
New production (WTI@60)
New production (WTI@50)
Base production (YE 2017)
History Forecast
U.S. oil production from horizontal wells: outlook by WTI price scenario
Thousand barrels per day
Permian oil takeaway capacity situation is set to remain tight in 2018-2020
Bottlenecks are set to remain soft unless EPIC is delayed
Source: Rystad Energy Shale Trends Report January 2018
15
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2016 Q12017
Q22017
Q32017
Q42017
Q12018
Q22018
Q32018
Q42018
Q12019
Q22019
Q32019
Q42019
Q12020
Q22020
Q32020
Q42020
Basin West Texas Gulf
Amdel and White Oil Centurion North
Longhorn BridgeTex
Cactus Permian Express II
Midland-to-Sealy Permian Express III
EPIC Delaware-Cushing pipeline
Cactus II Gray Oak
South Texas Gateway Rail
Local refining demand Oil production
Permian oil takeaway capacity by pipeline and expected production
Thousand barrels per day
Forecast
3036
41
6156
41
78
113
149
174
210
0
50
100
150
200
250
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Appalachia Permian Eagle Ford Bakken DJ Basin Mid-Con Rest of US
Frac sand market is in unchartered waters, with demand expected to reach 113 MM
tons in 2018; further upside exists if oil prices stay at current levels
16
Frac Sand Demand
Source: Rystad Energy ShaleIntel
US Land: Frac Sand Demand (MM tons)
“In-basin” sands have significantly changed the frac sand supply landscape and is
expected to gain market share in 2018
17
75%
17%
8%
2014
Northern White Sand Brown Sand Other
Breakdown of Frac Sand Supply, By Type ProppantIntel 18Q2 / March 2018
Source: Rystad Energy Research & Analysis
54%
15%
25%
6%
2018
Northern White Sand Brown Sand In-Basin Sand Other
Forecast
1,244 1,290 1,255
2,682
3,616
4,321
4,739
5,691
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2014 2015 2016 2017 2018 2019 2020 2021
Trucking and poor road infrastructure are significant bottlenecks; increased well site
storage and other innovative solutions could partially mitigate these issues
18
Permian: Frac Sand Trucking Demand ProppantIntel 18Q2 / March 2018
Source: Rystad Energy Research & Analysis
Permian: Frac Sand Trucks on Road per Day
Labor and workable equipment are the most immediate bottlenecks in the pressure
pumping market; service companies also wary of recent upturn
19
Bottlenecks – Pressure Pumping Market
Source: Rystad Energy ShaleIntel
Frac Crews
Frac Equipment
• Workers laid off in 2014 reluctant to return; many have new jobs and families; living in West Texas man-camps unappealing even with financial incentives
• Increased frac times in 2017 relative to 2016 levels could be pointing to existing issues with inexperienced frac crews
• Need to staff more people per frac crew to maintain 24 hour operations
• There is less working frac equipment now relative to 2014, prior to the downturn
• Many new-builds are replacing old equipment, rather than making new spreads due to significant portion of cold-stacked equipment being deemed beyond repair
• Service companies are reluctant to use Tier 4 engines, as they are more expensive to purchase and maintain and may have other teething issues
InsightBottleneck
Equipment Lead Times
• New-build equipment takes more than 6 months from order to delivery
• Manufacturers themselves may need to add capacity
Service Company Attitude
• Many service companies are wary of short-lived upturn; many remember oversupply in 2015 and 2016
• Service companies might wait for $80/bbl. to $100/bbl. WTI before aggressively expanding capacity
• Service companies have expressed concerns that even with higher oil prices it would be difficult to quickly expand capacity due to labor and other factors