Shale oil output wanes as U.S. producers retreat in bear market

DAN MURTAUGH

WASHINGTON (Bloomberg) -- The shale fields that propelled the U.S. energy boom are expected to take another step back next month as producers reduce costs in the midst of a bear market.

Output from the prolific tight-rock formations, such as the Eagle Ford in southern Texas, will decline by about 92,000 bopd next month to 5.27 MMbopd, the Energy Information Administration said Monday. It’s the fifth straight month a slide is expected, after output more than tripled from 2007.

Shale producers like EOG Resources Inc. have cut spending and reduced output after oil prices fell more than 20% from their 2015 peak in June, and remain down by more than half from a year ago. The number of rigs drilling for oil last week was 670, down from 1,609 in October, according to Baker Hughes Inc.

“We’re certainly in the period where we should see the effects of the declining rig count,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone. “The market is anticipating a decline in production, now it’s just a matter of waiting to see how much it is in reality.”

West Texas Intermediate crude for September delivery rose $1.09/bbl to settle at $44.96 on the New York Mercantile Exchange on Monday, after falling to the lowest level since March on Friday.

Efficiency Gains

The EIA’s production forecasts cover the yield from major plays that together accounted for 90% of domestic output growth from 2011 to 2012. Oil-production estimates are based on the number of rigs drilling in each play and estimates on how productive they are.

Output from the Permian basin in West Texas and New Mexico, the largest U.S. oil field, will rise by 8,000 bpd to 2.04 MMbpd.

Production from the Eagle Ford, the second-largest, is expected to fall 56,000 bopd in September to 1.48 MMbopd. In the Bakken region of North Dakota, output will decline 27,000 to 1.16 MMbopd, the EIA said.

Morgan Stanley urged caution in using the EIA’s estimates in a research note today, citing common historical revisions. The EIA may not be capturing all the gains in efficiency that companies have made since the downturn began, such as focusing drilling on only the best parts of different plays.

“We would be hesitant to assume recent forecasts for a sharp decline will be realized,” Adam Longson, a commodity strategy research analyst for the bank, said in the note.