Shale oil production cuts to get bigger next month, EIA says

LYNN DOAN

SAN FRANCISCO, California (Bloomberg) -- The U.S. lost about 1% of the oil production flowing from its shale formations this month, and the decline is just starting.

Output from the prolific tight-rock formations such as North Dakota’s Bakken and Texas’s Eagle Ford shale will slide 54,227 bpd this month, based on Energy Information Administration estimates. It’ll fall another 86,000 bbl in June to a five-month low of 5.56 million, the agency said Monday.

Last year’s plunge in crude prices led to the steepest and most prolonged retreat from U.S. oil fields on record. Drillers have idled more than half the country’s rigs and eliminated tens of thousands of jobs. Some of the country’s largest shale producers including ConocoPhillips and EOG Resources Inc. have said spending cuts were deep enough to curb domestic output.

“Even if 10 rigs come back today, we’re still going to see production decline,’ said Amrita Sen, chief oil analyst at consultant Energy Aspects. ‘‘We’ve reached this inflection point where there aren’t enough rigs drilling to offset legacy declines.”

West Texas Intermediate crude for June delivery fell 7 cents to $59.18/bbl in electronic trading on the New York Mercantile Exchange at 11:45 a.m. Singapore time. Futures have rallied 36% since March amid speculation that oil production is poised to fall.

Output Drop

Standard Chartered forecast on May 4 that U.S. shale oil output will drop about 78,000 bpd in June from a month earlier, with declines totaling 137,000 bpd in the second-quarter.

The drop in shale output may prove short-lived. The rebound in prices has drillers including Pioneer Natural Resources Co. preparing to put rigs back to work in U.S. fields. The Irving, Texas-based company said last week that it may deploy more rigs as soon as July.

“Prices are at a level where you’re inviting the deployment of rigs again, so the view of supply significantly falling may be misguided,” said Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London.

The EIA’s June production forecasts cover the yield from major plays that together accounted for 95% of domestic output growth from 2011 to 2013.

Output from the Eagle Ford in Texas, the second-largest oil field in the U.S., will slide by 2.8% in June to 1.64 MMbopd. Production in the Bakken region of North Dakota will drop 2.4% to 1.27 million, the EIA said.

Yield from the Permian basin in West Texas and New Mexico, the largest U.S. oil field, will continue to rise, climbing 0.3% to 2.06 million.

The EIA’s oil-production estimates are based on the number of rigs drilling in each play and how productive they are. The number of oil rigs in service across the country has fallen for 22 straight weeks, reaching 668 on May 8, the fewest since September 2010, according to field services company Baker Hughes Inc.