US production of 616,000 barrels of oil per day (bpd) will be shut during May and 655,000 bpd during June as a result of the supply-demand imbalance that the Covid-19 pandemic has created, according to a Rystad Energy analysis based on the early communication from US oil producers.
The figures do not represent the total production curtailment that the US is experiencing and will experience but are Rystad Energy’s cumulative interpretation of the official guidance so far released from 19 producers. Actual production cuts are probably larger and are not only the result of shut-ins but also come from the natural decline from existing wells as new wells and drilling are reduced.
Rystad Energy’s calculation last week was based on guidance by only five companies. Now that more producers have communicated their plans, we have updated our estimate and added new details. Based on the updated guidance, around 187,000 bpd were shut in the US during April.
Most of the producers now specifically mention shut-ins of higher-cost wells in combination with partial well-level output reductions. Economic and technical considerations, as well as leasehold obligations, are at the forefront of the decision-making process as most producers consider not only the operating cost of the well relative to the oil price but also the cost and difficulty of bringing production back to the pre-cut levels.
“Given the severity of the current market situation and significant production curtailments announced already since April, shale producers are not relying on natural decline but are rather choosing more drastic methods to reduce their output substantially and fast, which is also being confirmed in the recent communication,“ says Rystad Energy’s Vice President North American Shale and Upstream Veronika Akulinitseva.
Supermajors Chevron and ExxonMobil have been among the first producers to make clear announcements of curtailed production volumes to be expected over the next months. Chevron expects to cut US oil output by about 66,000 bpd in May and 80,000 bpd in June, which represents about 35% to 42% of its operated unconventional oil production.
About a third of ExxonMobil’s planned cuts will come from economic shut-ins in the US, primarily in the Permian. Rystad Energy estimates that around 74,000 bpd of oil may be removed in May and June, with some initial curtailments probably having been made in April.
Rystad Energy said cuts from a number of other companies will cumulatively add to the growing volume of production curtailments in the US.
“The cuts will be achieved through a combination of measures including deferral of POP wells, shut-ins of higher-cost wells, and partial reduction of output from other selected wells. The Bakken and Permian volumes are so far estimated to be affected the most, as most of the companies that have reported cuts are largely present in these basins,” Akulinitseva added.