At what crude price will U.S. liquids production slow sufficiently to reboot that price?
Analysts agree a production slowdown is the cure, absent OPEC or non-OPEC cutbacks.
Raymond James analysts led by J. Marshall Adkins ran the numbers in December. According to their report, “current 2015 oil price strip levels around $65 to $70 WTI [West Texas Intermediate] over the next year to 18 months should be the right price to slow U.S. oil production growth and thus rebalance the global oil markets in 2016.”
The analysts changed their 2015 to 2016 U.S. oilfield cash flow, activity and spending assumptions in calculating the price needed to balance oil markets. They assume U.S. E&P spending will fall 17% in 2015 and another 9% in 2016. They look for the average annual U.S. drilling rig count to tumble by 19% (or 348 rigs) in 2015 and by another 11% (or 170 rigs) in 2016, for a 32% peak-to-trough decline over the next 18 months.
The average annual horizontal drilling rig count will decline by 13% (or 164 rigs) in 2015 and by another 7% in 2016 for a 25% decline over the next 18 months, they figure. And lastly, “U.S. E&P cash flows [industry-wide] will fall by 29% in 2015, then stabilize to relatively flat in 2016.”
While all will suffer, some liquids-producing plays will hold up better than others. The analysts expect the Permian and Eagle Ford to see smaller percentage declines (25% and 23%, respectively) compared to other plays. The Midcontinent plays will bear the brunt, they said.
Overall, they anticipate that oil prices of $65 to $70 in 2015 will drive U.S. E&P cash flows, spending and rig counts low enough to “fix” oil by 2016—by working off the 1 million barrels per day (MMbbl/d) of true excess capacity currently.
“While this is clearly ugly,” they said, “it is important to note that this type of reduction in activity and oil supply will likely leave the oil markets meaningfully short of oil in 2017.”
Recommended Reading
First Solar’s 14 GW of Operational Capacity to Support 30,000 Jobs by 2026
2024-02-26 - First Solar commissioned a study to analyze the economic impact of its vertically integrated solar manufacturing value chain.
SunPower Begins Search for New CEO
2024-02-27 - Former CEO Peter Faricy departed SunPower Corp. on Feb. 26, according to the company.
Green Swan Seeks US Financing for Global Decarbonization Projects
2024-02-21 - Green Swan, an investment platform seeking to provide capital to countries signed on to the Paris Agreement, is courting U.S. investors to fund decarbonization projects in countries including Iran and Venezuela, its executives told Hart Energy.
M4E Lithium Closes Funding for Brazilian Lithium Exploration
2024-03-15 - M4E’s financing package includes an equity investment, a royalty purchase and an option for a strategic offtake agreement.
GE Vernova Completes Spin-Off from GE
2024-04-04 - GE Vernova, an energy transition company, began trading as an independent company on the New York Stock Exchange this week.