U.S. drilling decreases on shale consolidation, technical advancements following record production

During first-half 2024, U.S. oil and gas production surged on drilling increases, particularly in the Permian basin. This fact was highlighted in the widely watched Presidential debate between current Vice President Kamala Harris and former President Donald Trump.  

Domestic oil production hit a record under President Joe Biden’s administration, a surprising but well-received revelation considering the Democratic party’s known aversion to fossil fuel development. According to the U.S. Energy Information Administration, output averaged 12.9 MMbpd in 2023, breaking the record high achieved in 2019. And production has increased further, through the first eight months of 2024. It is no small testimonial to the technical innovations and efficiencies generated by the U.S. upstream industry. 

In a threat to OPEC’s efforts to control prices, multiple companies increased their 2024 production forecasts in the first half of the year on surprise production gains derived from more efficient drilling, Fig 1. Examples include EOG Resources, Coterra Energy, Civitas Resources, Ovintiv and Matador Resources.   

That trend may be slowing, as high-quality drilling locations dwindle, consolidations acquire remaining acreage, and technological improvements increase operational efficiencies. Still, analysts from BloombergNEF predict that U.S. oil production will grow 600,000 bpd in 2025, thanks to higher well productivity 

Major oil field service providers reported a drop in North American sales, as companies optimize their U.S. assets and focus on international exploration, including competitors Halliburton and SLB.   

According to Barclays, total North American producer spending is forecast to drop 1% in 2024. Additionally, the U.S. EIA reported in April that shale operators drilled more wells than were fraced, in the industry’s first back-to-back months of increased drilled-but-uncompleted wells since 2022.  

U.S. MARKET FACTORS 

2024 presidential election. Oil and gas have been a major talking point for both presidential candidates for the upcoming U.S. presidential election. The Democratic nominee, Vice President Kamala Harris, has changed her stance on fracing, in an effort to secure votes in important swing states like Pennsylvania, Fig. 2. The Republican nominee, former President Donald Trump, has been a steady supporter of fracing, going all the way back to his first Presidential campaign in 2016, Fig. 2.  

Republicans unearthed Harris’ past disparaging comments on hydraulic fracturing, expressing concern for the future of American energy development. In 2019, during her first campaign for President, Harris was quoted as saying, “There’s no question I’m in favor of banning fracing,” in response to a question regarding plans to ban the practice on her first day in office. 

Meanwhile, Trump has continuously pushed the “drill, baby, drill,” narrative, promising to lift drilling bans on federal lands enacted by the Biden administration. Trump sees greater drilling as a means to protect U.S energy security. 

LNG export pause. In January, the U.S. Department of Energy announced a pause on new LNG export licenses to various countries while officials researched the environmental and economic impacts of the fuel and associated shipping. In June, a Louisianna federal judge lifted the ruling, following a 16-state lawsuit.  

While the Energy Department appeals the decision, the agency granted a five-year export license to New Fortress Energy, the first since the pause was announced. This license to export LNG to Mexico also works in connection with the company’s Fast LNG solution, an offshore natural gas liquefaction facility built on platforms. The move has been lauded as a win for the industry, which is depending on the liquified fuel to assist in the greater energy transition.  

Still, the current administration’s seemingly hostile attitude toward LNG continues. It prompted CEOs from oil and gas majors to call on Biden to halt his attack on U.S. LNG during the recent Gastech 2024 conference in Houston.  

M&A activity. During 2023, there was a wave of merger and acquisition (M&A) activity, spurred on by ExxonMobil’s historic $63 billion acquisition of Pioneer Natural Resources (Fig. 3) and Chevron’s $53 billion acquisition of Hess Corporation. 

Currently, Chevron is in arbitration with ExxonMobil over the Hess deal, as ExxonMobil argues the right of first refusal over assets offshore Guyana. While Chevron executives hold out hope for a closure in 2024, the deal may stall into next year, as arbitration drags on and the transaction clears various regulatory hurdles. 

So far, 2024 has seen, and will continue to see, the signing and closing of several high-profile deals, mostly focused in the Permian basin. This is evident in ConocoPhillips’ $22.5 billion acquisition of Marathon Oil, announced in the first half of 2024. 

While the Permian basin has dominated recent dealmaking, other shale plays are looking to attract significant investments, with about $41 billion of non-Permian opportunities on the market, according to Rystad Energy. This includes potential sales in the Bakken, Uinta, Marcelus and Haynesville plays across the U.S.  

Digital transformation initiatives contributed to the overall decrease in U.S. drilling activity, as operators utilized advanced AI and automation technologies to increase efficiencies and extract more resources with less effort.  

According to analysts from Goldman Sachs, AI proliferation “merely represents a continuation of the enormous productivity improvements observed in this industry over the last few decades.” Artificial intelligence would increase recoverable resource base, “delaying further the peak of U.S. shale supply, and further slowing a potential drawdown of elevated OPEC+ spare capacity,” according to a note written by the analysts to investors.  

Drilling efficiencies. According to a June report from Enverus Intelligence Research, rigs across major unconventional basins last year were “30% more efficient at drilling productive lateral feet per total rig days compared to 2019.” 

Operators are focusing on increasing drilling speeds to reduce rig time and overall costs. In the Bakken shale, rig improvements are allowing companies to drill longer laterals. Drillers have extended the horizontal lengths of their wells since 2020 to three miles or more, to produce more from existing sites.  

U.S. RIG COUNT 

In the first eight months of 2024, the Baker Hughes U.S. rig count remained relatively flat, with small gains or losses, as operators restricted their drilling while realizing unexpected gains in domestic oil and gas production. In 2023, the rig count had decreased 20% after increasing more than 30% in 2022, and even more in 2021. Companies also have placed an emphasis this year on paying down debts and boosting shareholder returns, contributing to the up-and-down rig count statistics seen this year.  

As of Sept. 20, the rig count has fallen five out of its last six weeks, Baker Hughes reported. Oil rigs have remained unchanged at 488 for a period of time, while gas rigs fell to 96.  

U.S. WELLS FORECAST/TRENDS  

Given the above-mentioned factors, along with our surveys of operators and state agencies, World Oil predicts that second-half U.S. drilling will be down 2.8% from the first half, Table 1. Overall, 2024’s drilling will be down 7.1% from the 2023 well total. Footage drilled in the second half will be down 4.5% from the footage drilled in the first half, due to shallower wells being drilled in some states. 

However, 2024 footage, overall, will be down just 4.8%, compared to the well total being down 7.1%. This is because footage drilled per well during 2024 is greater than 2023, despite the shallower wells in some states during the second half of this year.   

In all, 18 states, districts or areas will be up in the second half, compared to the first half. However, 21 states, districts or areas will be down in the second half, compared to the first half. So, World Oil sees the country split roughly 50/50 between areas that are up and areas that are down.  

U.S. GULF OF MEXICO 

The first half of 2024 saw the fruition of several highly anticipated regional projects. Most notably, Chevron and its partner, TotalEnergies, began oil and gas production from the Anchor deepwater, HPHT development, Fig. 4. This “industry-first” project marked the successful delivery of high-pressure technology that is rated to safely operate at up to 20,000 psi, with reservoir depths reaching 34,000 ft below sea level. 

LLOG made headways on its Who Dat offshore development, greenlighting drilling operations on its southern exploration well at the beginning of September. Additionally, the company plans to drill an appraisal well at its Blacktip discovery during second-half 2024.  

While most major IOCs are focusing their deepwater aspirations on hotter plays like those recently uncovered offshore Guyana and Namibia, bp is investing heavily in several significant GOM projects, including its Kaskida development. However, like most of its projects, Kaskida is still in its early stages, and production isn’t expected until 2029.  

While offshore drilling contractors like Transocean and Diamond Offshore (now Noble Corporation) have secured several deepwater contracts set to begin in early 2025, most work in the Gulf of Mexico during 2024 is dedicated to maintaining currently operated projects and planning future endeavors. As such, World Oil expects drilling to decrease 2.7% in the region, with footage drilled up slightly at 0.2%. The disparity between the well and footage numbers can be explained by operators drilling longer wellbores. 

TEXAS 

In Texas, World Oil anticipates nine of the 12 Railroad districts to be down during second-half 2024, with only three expected on the upside. This is due mostly to slowing U.S. shale production, as Permian-focused industry consolidation secures the last remaining high-quality drilling locations.  

Additionally, technological innovations and expansions in automation and artificial intelligence are creating greater efficiencies for operators, allowing them to reduce rig count, cut costs, and return cash to important shareholders.  

As such, we expect Texas drilling to decrease 5.0% in the second half of 2024, with footage drilled decreasing 3.7%.  

Permian basin. In 2023, the U.S. shale sector experienced an unprecedented wave of M&A activity. That deal-making spirit carried into the first half of 2024, with many multi-billion-dollar acquisitions closing, with the new transactions helping operators snap up remaining drilling acreage. Much of this activity occurred in Texas’ prolific Permian basin.  

In May, ExxonMobil closed its acquisition of Pioneer Natural Resources, making it the largest player in the region while unlocking high-quality drilling potential. Accompanying this news were allegations against Pioneer CEO Scott Sheffield, who has been barred by the FTC from joining the ExxonMobil board over what he and the company call “baseless” allegations of OPEC+ collusion.  

Other major deal closures include: 

• Diamondback Energy’s $26 billion merger with Endeavor Energy Resources, Fig 5. 

• ConocoPhillips’ $22.5 billion acquisition of Marathon Oil 

• Occidental Petroleum’s $10.8 billion deal to acquire CrownRock LP 

Eagle Ford shale. Well over half of activity in Texas is focused on Permian operations. However, in June, Enverus Intelligence Research released new research that analyzed which oil and gas plays show the greatest rate of increase in drilling speeds, and whether well costs correlate with drilling speeds. The research firm found “reasonable correlations between faster drilling speeds and lower-cost operators in both the Permian and Eagle Ford.” 

Additionally, Crescent Energy and SilverBow Resources closed on their $2.1 billion deal, creating the second-largest player in the Eagle Ford. Activity in this play includes Railroad Districts 1, 2 and 4. 

SOUTHEAST 

The Southeastern region has an eclectic mix of oil and gas plays. This trend continues to produce a mixture of results. In Louisianna, Aethon Energy Management sees growing investor interest in publicly traded drillers focusing on natural gas in the Haynesville shale.  

Additionally, Mesa Royalties III Holdings acquired oil and gas interests in the Haynesville from a mystery buyer in the first half of 2024, giving the investment firm an opportunity to develop over 6,000 royalty acres across the region, where big industry players like Southwestern Energy and Chesapeake Energy operate.  

Despite these positive developments, we and the Louisiana Office of Conservation expect drilling to tumble 38.9% in North Louisiana during second-half 2024. Continued low natural gas prices are the primary culprit. Footage will be down 38.7%. 

Meanwhile, in Louisiana’s southern region traditional oil plays, activity is more stable. In fact, we and the Office of Conservation expect a one-well increase during second-half 2024, up 3.0%. Overall, Louisiana will be down 33.9% as a whole, and footage will be off 37.1% in the second half.  

Reeling from historically low activity in the first half, Mississippi and Alabama are set to increase drilling by 66.7% and 33.3%, respectively.  

NORTHEAST 

The U.S. Northeast is home to many major infrastructure issues that have long contributed to decline or stagnation in various states. In New York, drilling activity is set to decrease 7.1%, as the state focuses on greenlighting offshore wind developments and other renewable projects.  

Compared to first-half 2024, West Virginia holds steady at 150 wells and a 0% change in new holes and footage. However, neighboring Virginia will be down 16.7%, as the state follows New York in utilizing its coast for offshore wind development.  

Rystad Energy reported during first-half 2024 that “non-Permian plays” are attracting investors, as the consolidation wave enters new regions of the U.S. As an example, the firm listed EQT's remaining non-operated Marcellus portfolio as potential merger material. Accordingly, Pennsylvania is forecast to post a 10.1% increase in second-half drilling.  

Additionally, Chesapeake Energy’s $7 billion purchase of Southwestern Energy is expected to close at the end of 2024, allowing Chesapeake to expand its footprint in the Marcellus shale, Fig 6. 

MIDWEST 

This region has a long history of oil and gas production. As such, World Oil expects gains in several states. Indiana is forecast to experience a 50% drilling increase, followed by Michigan’s 25% improvement, driven by oil activity.  

However, activity in Illinois is expected to decrease 1.9%. Additionally, Ohio will see a 10.1% drop in drilling during second-half 2024, with activity almost evenly split between oil and gas projects.  

MID-CONTINENT 

World Oil forecasts drilling to be roughly flat in this region. In North Dakota, activity will continue at its current pace, drilling the same number of wells in the first half of 2024 as the second.  

Hess Corporation is a major player in the Bakken shale, whose second-quarter 2024 report revealed 38 drilled wells, four operated rigs, 37 well completions and 31 new online wells, Fig. 7. According to the report, the company’s Bakken production is forecast to be between 200,000 boed and 205,000 boed in third-quarter 2024, reflecting lower anticipated volumes received under percentage of proceeds contracts and planned gas infrastructure maintenance.  

Striking its first big acquisition in the U.S. M&A wave, Devon Energy announced it is acquiring Grayson Mill Energy for $5 billion. The deal continues a trend of buyers looking beyond the Permian to find affordable opportunities of scale in an increasingly consolidated market. 

According to Andrew Dittmar, principal analyst at Enverus Intelligence Research, Grayson Mill was one of the largest remaining private opportunities reasonably likely to come up for sale, with around 500 remaining drilling locations and over 100,000 boed of production. 

Separately, Enverus Intelligence Research suggested that “refracs, tight-infills, drill-overs and lease line wells” could unlock 3,000 additional locations across the Bakken.  

In Oklahoma, Acacia Research Corporation announced plans to acquire upstream assets from a private seller. The acquisition is anticipated to add 140,000 net acres and 470 operated producing wells in the prolific Western Anadarko basin throughout Western Oklahoma and the Texas Panhandle.  

Still, Oklahoma’s plays have proven to be somewhat difficult and expensive, and thus a disappointment. Accordingly, drilling activity is expected to decrease 8.6%, offsetting small gains (+5.3%) in Kansas.  

Nebraska is holding steady, adding just as many wells in the second half of 2024 as the first.  

ROCKY MOUNTAINS 

In second-half 2024, World Oil predicts mixed results from various states in this region. While we expect drilling increases in Wyoming (+29.4%) and New Mexico (+0.5%), activity in Utah is expected to decrease 40.7%, and in Colorado by 5.2%. Activity in this region also will be driven by operations in Montana’s portion of the Bakken shale. 

The Western Energy Alliance won a significant lawsuit in March, as the U.S. District Court for the District of Columbia upheld the first onshore oil and gas lease sales of the Biden administration, held in June 2022. 

Judge Christopher Copper ruled in favor of the Bureau of Land Management’s (BLM) greenhouse gas analysis that served as the basis of the sale of 162 leases in Wyoming, Montana, North Dakota, Oklahoma, New Mexico, Nevada, and Colorado. 

In Utah, much of first-half 2024’s activity was driven by Zephyr Energy’s Paradox basin project, Fig. 8. Zephyr's flagship asset is an operated 46,000-acre lease holding, 25,000 acres of which have been assessed to hold 2P reserves of 2.6 MMboe, 2C resources of 34 MMboe and 2U resources of 270 MMboe.  

In June, Quantum Capital Group acquired Rocky Mountain-focused Caerus Oil and Gas for $1.8 billion, a relatively rare example of a secondary buyout. QB Energy is acquiring the producing upstream assets, gathering and compression midstream assets and all other assets owned by Caerus in Colorado’s Piceance basin.  

While drilling is expected to decrease in Texas’ portion of the Permian region, New Mexico has plenty of untapped acreage that is ripe for operators looking to drill into the Delaware basin’s stacked play.  

Technology is playing a large role in New Mexico’s expected growth, as infrastructure improvements make the region more accessible. In fact, the Atlas Energy Solutions-operated Dune Pipeline is expected to come online in the second half of the year. The pipeline, a 42-mi, fully electric conveyor belt system, will transport frac sand between Kermit, Texas, and New Mexico.  

As operators look toward New Mexico amid a Texas Permian reduction, World Oil expects drilling in the state to increase slightly, up 0.5%.  

WEST COAST 

Although California is a notoriously difficult state for oil and gas operators, World Oil expects significant gains, both onshore and offshore. 

In the first half of 2024, Chevron announced that it will exit the state and relocate to Houston, Texas, due to the latter’s more oil-and-gas-friendly environment. CEO Mike Wirth was quoted by Bloomberg Television as saying, “We’ve had some policy differences with California … But this isn’t a move about politics. It’s a move about what’s good for our company to compete and perform.” 

In August, Sable Offshore reported it received final approval to own and operate the Santa Ynez Unit, located along the Gaviota Coast at Las Flores Canyon (LFC). The deal included 16 Outer Continental Shelf leases covering 76,000 acres and three production platforms. The company paid ExxonMobil over $640 million for the assets, where the company expects to begin production in 2026.  

California was the seventh-largest producer of crude oil among the 50 states in 2023, according to the U.S. Energy Information Administration. Increases in gas activity, are attributed to the need to meet the state’s power demand while the state tries to create a workable renewable energy roadmap. And oil activity reflects the need to continue to meet demand for gasoline from consumers that refuse to buy/operate EVs. 

Much of Alaska’s oil and gas future rests on the results of November’s presidential election. In April 2024, the Biden administration formally limited oil and gas drilling across 13 million acres of the 23-million-acre NPR-A.  

Leasing is also blocked on 10.6 million acres. The move has brought wide condemnation from the oil and gas industry on concerns over harnessing U.S. resources to improve energy security at a time of geopolitical uncertainty. 

The move to ban drilling in the resource-abundant state spurred a lawsuit from ConocoPhillips, operator of the Willow project, a development that is being closely watched by the industry, Fig. 9. According to ConocoPhillips, the project will create 2,500 construction jobs and 300 long-term jobs, with a production rate of 180,000 bopd at its peak. 

Earlier this year, former President Donald Trump told Senate Republicans of plans he has to restart drilling in Alaska’ Arctic National Wildlife Refuge, assuming he wins the race against Vice President Kamala Harris.  

Still, operators like Santos continue with their approved projects, like the company’s Pikka development on Alaska’s North Slope, which is expected to come online in 2026. Additionally, 88 Energy Limited has made several exciting light oil discoveries from its Project Phoenix, also in Alaska’s North Slope. 

Despite collective efforts from the industry, governmental interference will see Alaska’s drilling decrease 5.3%.