Crude oil and natural gas production growth stalled in 2015 and has declined this year in some of the big shale basins. But we may be seeing a turnaround. The latest EIA Drilling Productivity Report, released on December 12, 2016, included upward revisions to its recent shale production estimates and also projects an increase in its one-month outlook for the first time in 21 months (since its March 2015 report). Today we break down the latest DPR data.
Since its inception in late 2013 (we first introduced it to the RBN blogosphere in Higher and Higher), the DPR has become an industry bellwether for production trends. The report provides a leading indication of expected crude and natural gas production from seven leading shale basins across the U.S. To do that, EIA takes its historical monthly production estimates (which are lagged by two months), well production data from individual states as well as rig counts and other data sources and estimates historical and recent rig productivity. It then comes up with implied oil and gas production volumes for each month going forward, including the two previous months where EIA data is not yet available, as well as the current month and one forward month. It does this for the seven major U.S. shale plays: Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, Permian and Utica. We provided a detailed explanation of the DPR’s model inputs, methodology, assumptions and risks in our blog series “Every Rig You Take.” But in short, the aim of the report is to estimate the net impact of natural declines from existing wells (older than 30 days), productivity changes and new drilling on production volumes on a monthly basis. The bottom line is if improving rig productivity is more than offsetting natural declines or slower drilling activity, then production is expected to increase. If the decline in volume from existing wells is the larger of the two, then DPR shows a decline in production. As another month of actual production volumes and other inputs become available, the DPR revises its historical and forward estimates in the next release.
The NATGAS Production Tracker - Texas provides a DAILY update of natural gas production in Texas the New Mexico side of the Permian Basin. Quickly and easily view today’s supplies in the Lone Star state and download the full historical table when you need it.
The latest DPR not only shows upward revisions in recent production estimates (for both oil and gas) but also indicates a potential turning point in production trends––for the first time since the March 2015 report, the DPR is projecting a net increase in production in January. That is not to say we have not seen actual month-on-month increases in the last 21 months—we have. In many months, as more data became available and is applied retroactively, the DPR’s projected declines have turned into actual increases. However, the March 2015 report was the last time the DPR’s analysis of drilling activity and rig productivity indicated that production would increase. So let’s take a closer look at the data, starting with what’s changed in DPR’s latest oil and gas estimates. Figure 1 compares the actual and implied estimates for total shale oil (left graph) and shale gas production (right graph) from the latest (December 2016) report and the previous (November 2016) report. The solid lines in the graphs are considered more or less actuals (likely to see lesser revisions), while the dashed continuation lines are implied estimates based on the model inputs described above.
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About the song
James Van Heusen wrote the music for “High Hopes,” and Sammy Cahn wrote the lyrics. The song first appeared in the 1959 motion picture A Hole in the Head and was sung by Frank Sinatra and child actor Eddie Hodges. A single version of the song was recorded by Sinatra at Capitol Studio A in Hollywood in May 1959. It featured Sinatra with a children’s chorus and orchestral accompaniment provided and directed by Nelson Riddle. The credits on the label read “Frank Sinatra and a bunch of kids.” Released in June 1959, the single went to #30 on the Billboard Hot 100 Singles chart. Sammy Davis Jr. performed the song at the 32nd annual Academy Awards, where it won Best Original Song for its appearance in A Hole in the Head. The song became the theme for John F. Kennedy’s 1960 presidential campaign. Sinatra performed the song during Kennedy’s campaign run, adding the lyrics: “Everyone is voting for Jack, cause he’s got what all the rest lack. Everyone wants to back Jack, Jack is on the right track,” The song was included in the 1961 Sinatra album, All the Way.
The record’s personnel included Frank Sinatra (lead vocals), an uncredited children’s chorus, uncredited orchestra members, and Nelson Riddle (orchestrations and arrangements).
All the Way was recorded between May 1957 to September 1960. It was the fourth Capitol Records compilation album of Sinatra singles. It was released in April 1961. It featured Frank Sinatra on vocals and orchestrations and arrangements by Nelson Riddle. The collection was produced by Dave Cavanaugh.
Frank Sinatra was an American singer and actor known as the “Chairman of the Board” and “Ol’ Blue Eyes.” Sinatra had a remarkable career that spanned six decades. He started singing in clubs in his teens in the late 1930s and secured his first record deal with Columbia Records in 1943. He released 59 studio albums, two live albums, eight compilation albums, and 297 singles. He has sold more than 150 million records worldwide. He appeared in 63 motion pictures and numerous television shows. He received an Academy Award, 11 Grammy Awards, a Peabody Award, a Cecil B. DeMille Award, a Johnny Mercer Award, Kennedy Center Honors, a presidential Medal of Freedom, is a member of the Gaming Hall of Fame, and has three stars on the Hollywood Walk of Fame. Each year on Sinatra’s birthday (December 12), the Empire State Building lights up with blue lights in his honor. Sinatra died in Beverly Hills in May 1998 at the age of 82.
Comments
Interesting article. Thank you.
I am curious, however, about the sentence: "On the upside, the DPR does not take into account pipeline expansions that may allow more production to occur, specifically gas out of the constrained Marcellus/Utica."
I didn't think the DPR considered takeaway constraints, at all. I thought it was simply a rig/wells/production kind of thing. Consequently, wouldn't any takeaway constraints operate to lower the actual production number from that forecast by the DPR, but never raise it?
Thanks,
Glenn
The rig count data does not have the same significance today as it did 3 years ago. The data that must be taken into account is the DUCs. A DUC is an investment waiting to be productive. A DUC is a completed LTO well but not fracked. There are 2 raisons for a DUC to be fracked and be producing. The first is to replace a EUR producing well by an IP well. One IP well may produce more than 2 or 3 EUR wells. The second is to frack a DUC to take advantage of the index crude oil price increase. It does take 2 months to drill a DUC but 3 weeks max to frack a DUC and be a profitable producing well. LTO-Shale has become a totally new way to analyze the O&G production. Rig count in a LTO environment does not have the meaning it has in a standard reservoir play.