As BTU discussed in last month’s Energy Market Insights, oil shut-ins across various US oil production regions have resulted in a drastic drop in US oil production over the last several weeks. Today’s commentary will revisit implied oil shut-ins across several basins based on updates to our modeled daily gas production. The basis for this analysis relies on the nature of associated gas production in liquids-focused plays. Because these plays produce significant volumes of natural gas in addition to crude oil, measuring the impact of shut-ins to gas production serves as a proxy for shut-ins to crude production.
Despite the recent (modest) recovery in crude prices, differentials for Bakken crude have widened as prices in the basin remain near $10/bbl, incentivizing continued shut-ins. Modeled daily gas production in May has declined by around 33% from average levels in March, implying a real-time reduction in crude output of around half a million barrels a day in May. Announcements from major players support the idea of significant near-term curtailments: Continental, with cuts up to 70% in May, and ongoing cuts into June; Enerplus, with a 25% cut to volumes in May, continuing through at least June; and Oasis, with a 25% cut in April, and more significant cuts expected in May.
The Permian, with a recent decline in modeled gas production of 14%, doesn’t show as much drama as the Bakken decline, however with the higher level of total production in the basin, even a modest percentage decline implies a substantial reduction in total crude production – in this case around three quarters of a million barrels a day in May. After prolific development of the basin over the last few years, both independents and majors have made announcements about cutting back on drilling, completions, and shutting-in production. ExxonMobil, Chevron, WPX, EOG, Occidental, Parsley, PDC, Pioneer, and others, have explicitly announced oil curtailments that in total amount to hundreds of thousands of barrels per day of Permian production in 2Q 2020.
To the north, in the DJ and Powder River Basins, recent modeled gas production has fallen off by almost 20% from March levels, implying significant shut-in oil volumes in May. Several prominent operators in the Rockies have announced curtailments to their production portfolios including Noble Energy, Occidental, Devon Energy, EOG, and Chesapeake. Decreases in modeled gas production indicate some producers are curtailing production.
As operators navigate markets amid the uncertainty of a world still disrupted by COVID-19, BTU Analytics continues to closely monitor US oil and gas production dynamics. For a more detailed look at shut-in announcements by various producers, a more comprehensive assessment of crude shut-ins by basin through time, and our analysis of changing US oil and gas supply-side fundamentals, check out BTU Analytics’ latest Upstream Outlook.