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EIA Footnotes: The million barrel per day fine print

Keeping up with data and information on the energy market can be a challenge, and when time is running short, skimming headlines rather than diving deep into footnotes and methodology can seem like a reasonable compromise.  But just like your mother told you to eat your broccoli, today I’m reminding you to read your footnotes. It’s good for you, I promise.  Case in point – the EIA Drilling Productivity Report (DPR).

Every month, when the report comes out, folks look at the reported numbers and make broad pronouncements about US rig productivity and what it means for production going forward.  But what gets lost along the way?  To the EIA’s credit, the agency is quite forthcoming on the methodology used for the DPR.  And on the DPR webpage, right below the table with the latest data is the footnote.

“Productivity estimates may overstate actual production which could be limited by logistical constraints”.  Let’s take a moment to think about what this means.  We’ve highlighted in the past some issues with the DPR methodology.  But what this footnote highlight is that the EIA’s production might not come to pass due to ‘logistical constraints’.  In the history of US shale development, ‘logistical constraints’ impacting production growth have most often been infrastructure development.  If you read our commentary regularly you understand that infrastructure is one of the most important factors in determining the pace of production growth and where that production growth occurs.

The chart below provides an illustration of this impact.  It shows the impact of infrastructure constraints over the next twelve months when comparing what production could be based on the rig count to what production is forecasted to be when accounting for infrastructure constraints.  That impact is roughly 500 Mb/d by year-end and almost 1 MMb/d by next year.

So eat your veggies and read your footnotes.  Or rely on BTU Analytics to read them for you and focus your attention on the details that matter to the big picture.  Request a sample of our Upstream Outlook service to read our coverage of US and Canadian oil and gas production or our Oil Market Outlook to get granular coverage of infrastructure’s impact on production and pricing.

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Kathryn Downey Miller is President of BTU Analytics where she leads the firm’s consulting and analytics groups in delivering market advisory services to clients across all sectors of the industry. Additionally, Kathryn oversees strategic planning, financial budgeting and analyst development for the company. Prior to founding BTU Analytics, Kathryn built market expertise in a diverse set of prior industry roles, including buyside investment research at an energy focused hedge fund, energy market fundamentals consulting at Bentek Energy, investor relations strategy consulting for E&P companies and investment banking at Citigroup. She speaks frequently at industry events on North American energy markets and is a CFA charterholder.

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