U.S. Oil Production: Strong Growth May Come to a Halt in 2015, IHS Report Says
February 03 2015 - 10:00AM
Business Wire
More than six years of historic gains in U.S. oil production may
come to a halt in 2015 as lower oil prices begin to affect
production
Stunning growth in U.S. oil production may come to a halt by
mid-2015 as low oil prices begin to constrain U.S. tight oil
production, which has been the dominant engine of world oil supply
gains in recent years, according to a new report by IHS (NYSE:
IHS), the leading source for global information and analytics.
Growth is still expected in the early months of 2015 but that
momentum will level off in the latter half of the year amidst
prices at lows not seen since the 2008-09 Great Recession.
The new report, based on an IHS study of 39,000 wells, points to
the possibility of month-to-month U.S. oil production growth coming
to a halt in the latter half of 2015, assuming that West Texas
Intermediate (WTI) prices remain below $60.
The study identified a wide spectrum of break-even prices for
U.S. crude oil production. About a quarter of new wells in 2014 had
a breakeven WTI price of $40 or less. Just less than half of new
wells in 2014 had a breakeven price of $60 or less. At the opposite
end of the spectrum, nearly 30 percent of new wells had breakeven
prices of $81 or higher. The break-even level is the WTI price
needed to cover capital and operating costs and generate a 10
percent return.
Hedging programs, finishing work on uncompleted wells,
contractual obligations and further drilling of the most economic
tight oil plays mean that many new wells will still be drilled in
2015. But adverse economics and lower spending will lead to fewer
wells drilled than in 2014, the report says.
Monthly average U.S. production at the close of 2015 is
projected to be about half a million barrels per day above the
January 2015 average, but nearly all of that growth will come in
the first half of the year. By December 2015, U.S. oil production
growth will have been flat for several months, the report says.
“U.S. oil production has been the main engine of global supply
growth in recent years,” said Jim Burkhard, Vice President, IHS
Energy. “And momentum from strong growth in the second half of 2014
means the impact of lower prices will not immediately drive
production lower. But the reality of lower oil prices and less
spending on new wells will affect production as 2015
progresses.”
The fate of U.S. oil production growth past 2015 and into 2016
will be shaped by global economic conditions, geopolitics and
changes in industry costs, all of which are in a state of flux,
according to Raoul LeBlanc, IHS Energy Senior Director, Financial
Markets and co-author of the report.
“So much can happen over the course of a year,” LeBlanc said.
“If oil prices remain weak and confidence in future prices remains
shaken, U.S. production in 2016 could possibly flatten or even
decline. But there is plenty that could happen—a recovery in oil
prices, lower upstream costs and improved well productivity—that
would quickly change the calculus of drilling new wells and
reinvigorate U.S. production growth.”
About IHS
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