The Energy Information Administration’s (EIA) latest U.S. monthly crude production statistics published March 30th show January production down 135 Mb/d versus December 2014, the largest month-on-month decline since June 2011. There was an earlier warning sign from EIA. The agency’s Drilling Productivity Report (DPR) published March 9th predicted that production would decline in April in three major U.S. oil production regions – Bakken, Eagle Ford and Niobrara. Since oil and NGL prices crashed last fall, the market has been watching with bated breath for the first signs of a production slowdown. Certainly rig counts have nosedived amid producer budget cuts in 2015. But are we really seeing the beginnings of a long-term slowdown just yet? Was the DPR a harbinger of the January production decline? The clues lie within the DPR report. Today’s blog parses DPR methodology, assumptions and risks as well as contributing market factors to get to the bottom of what is driving those reported production declines.
Latest DPR shows production declining
We first described the EIA’s DPR report – a new measure of production drilling efficiencies – shortly after it was launched in November 2013 (see Higher and Higher). Since then the report has become something of a bellwether for production trends in seven major U.S. oil and gas producing regions: Bakken, Eagle Ford, Niobrara, Permian, Haynesville, Marcellus and Utica. The report estimates the increase or decrease in rig productivity and the resulting production gain/loss for the current and next month. These are topics that RBN has also covered in detail in the past few months (see for example “All About That Base” and “Getting Better All The Time”). The latest report predicted the first month-on-month oil and gas declines in DPR data in over a year (since late 2013). Table 1 below shows forecasts in the March 2015 DPR for each of the seven regions indicating that Bakken production is projected to drop by 8 Mb/d of oil and 8 MMcf/d of gas in April versus March. Eagle Ford production is projected to be down 10 Mb/d in oil but up 14 MMcf/d in natural gas. Niobrara is expected to fall 5 Mb/d in oil and 15 MMcf/d in gas (red circles on the table).