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Gimme Some Truth - Permian Well Shut-ins Wind Down, But Natural Declines Extend Oil, Gas Downturn

Associated natural gas production out of the Permian Basin rebounded sharply a few weeks ago, indicating production curtailments that went into effect in May in response to low crude oil prices are coming back online. Just as abruptly as gas production dived in early May, it lurched upward in late June, nearly back to where it was before the shut-ins began. But the rig count has continued falling to a record low, and indications are that many of the wells drilled over the past few weeks have not been completed. The meager drilling and completion activity suggests that the natural declines of existing wells, which were temporarily exaggerated by the shut-ins, will now be felt — and felt for as long as rig counts remain depressed — not just in the Permian but also in other oil-focused basins. Daily gas production volumes in the Permian in the past 10 days or so already are slipping, despite shut-ins tapering. Today, we examine the latest production trends in the Permian and what it will mean for the gas production outlook.

It will be six months at least before the market will know with certainty what’s been happening with crude oil production in the Permian in recent weeks — that’s how far out the Texas state production data is lagged. However, we can use what information is available now to model and estimate production, as we do in our Crude Oil Permian report. And one really good, early tell of producers’ activity in the basin comes from looking at what has happened with natural gas production — the inevitable byproduct of all the oil-directed drilling going on in the Permian and other oil basins.

Unlike in the oil market, there is a vast amount of nearly real-time pipeline flow data available in the natural gas market, based on actual nominations reported by each interstate pipeline moving in and around the Permian — and in the case of the extensive network of intrastate pipelines in Texas, which aren’t required to report flows, there’s often a way to “see” those flows via intrastate connections with interstate pipelines or to model them.

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