May and June to See at Least 300,000 bbld Shut

U.S. oil production totaling at least 300,000 bbld is expected to be shut during May and June, according to a Rystad Energy analysis of early communication from U.S. oil producers. It is unclear how much of this is due to the COVID-19 pandemic and the related decline. Observers say it is certain that more production is likely to be taken offline due to the low oil prices.

Analyzing communication by Continental Resources, Cimarex Energy, ConocoPhillips, PDC Energy, Parsley Energy, and Enerplus Corp., the firm estimates that oil production cuts in May and June 2020 could amount to 300,000 bbld, an increase from about 100,000 bbld of cuts projected for April.
Several producers specifically mentioned production declines as a result of well shut-ins, while others did not specify whether production curtailments would come naturally as a result of a reduction in new wells put on production, or from shut-ins of already producing wells.

Rystad Energy currently estimates that shale producers will try to deliver on announced cuts as much as possible by reducing the number of new wells put into production. Thus, base decline could provide a material portion of the reported cut. However, given typical shale operational patterns, the decline in started jobs that began in March will result in a lower number of wells put on production in May, which ultimately will not lead to a drop in peak production until June.

Therefore, given the severity of the current market situation and the significant production curtailments announced already in April, shale producers are also likely to implement well shut-ins to bring the market into balance.

Continental Resources stands out as having taken the most drastic action so far. About 69,000 bbld in reductions were expected from Continental in April, followed by a cut of almost 150,000 bbld in May and June 2020. More companies are likely to follow with similar actions over the next few weeks.
ConocoPhillips has announced significant production curtailments across its portfolio in the Lower 48. The company mentioned 125,000 bbl of oil equivalent per day of gross output will be curtailed during May, or an estimated. This is estimated 60,000 bbld of oil net to the company.

As with Continental, the Bakken play is anticipated to be one of the primary regions for production cuts. ConocoPhillips also said it would be addressing the need for production curtailments month-by-month, and that cuts could easily be prolonged into the future. Rystad expects a similar level of curtailment might also be enacted in June.

Cimarex Energy is scheduled to cut its May output by 30% or around 27,000 bbld due to the weakness in realized prices. Similarly, PDC Energy plans to reduce its May and June output by up to 30% as a result of production curtailments. The company also assumes that a certain level of reductions will be maintained in the third quarter and eliminated by the fourth quarter. The production cut for PDC Energy is thought to be around 27,000 bbld in May and June.

Although Parsley Energy has not provided a clear statement on how much it plans to curb production over the next few months, its CEO Matt Gallagher mentioned in early April that the company has begun to shut in 400 “lower-producing wells” in response to current market conditions. These shut-ins could account for about 20% of the company’s output, or 22,000 bbld from April to June.

Enerplus Corp. has started to temporarily shut in selected wells across the Williston basin. The company's April production is expected to be modestly impacted by shut-in activity, but it expects to shut in more production in May in response to weaker oil pricing. Rystad Energy expects cuts to at least double in May and June.

“The estimated cuts from companies which have already made statements will be spread across the Lower 48 states, but production in the Williston basin will likely be affected the most. The Bakken play accounts for a high share of combined output, closely followed by Permian Delaware. Yet given the single-digit wellhead prices seen in the region recently, and overall commerciality, the shut-ins in Bakken are likely to be more pronounced,” says Rystad Energy’s vice president North American Shale and Upstream Veronika Akulinitseva.

Another key Bakken producer, Whiting Petroleum, recently filed for Chapter 11 and it’s anticipated its oil production could decline more quickly than previously assumed.

SOURCE: The Weekly Propane Newsletter, April 30, 2020. Subscribers receive all the latest posted and spot prices from major terminals and refineries around the U.S. delivered to inboxes every week. Receive a center spread of posted prices with hundreds of postings updated each week, along with market analysis, insightful commentary, and much more not found elsewhere.