Shale Oil: 2020 Forecasts

Shale estimates for year-over year changes in production for 2020 are coming in and there is a wide variance of thought. Bloomberg via MSN has the following:

What’s ticking folks off these days is how the International Energy Agency in Paris and the Energy Information Administration in Washington still predict robust U.S. production growth next year, despite the dire reality on the ground. The IEA expects an increase of 900,000 barrels a day, while the EIA forecasts 1 million, which would mean practically replicating this year’s expansion.

Those projections don’t jibe with the vibe in Texas, home to about half of U.S. crude output. Capital-hungry producers are being starved of funding, stocks have plunged and there’s been zero appetite for public offerings, making the downturn potentially more enduring than previous price-related busts. 



The 2020 year-over-year estimates range from 400,000 by Mark Papa who runs Centennial Resource Development Inc to 1,100,000 by Rystad.

Now I believe that year-over-year increases are based on the average increase from 2018 to 2019. Via my reading of EIA data, the current average output in 2019 is 8.6 mb/d. December output is estimated to hit 9.1 mb/d. Now these numbers are just shale oil and doesn't include gas. Also, estimates being provided might be total US production. But let's just say that all increase is related to shale. How much would shale have to increase. If Mark Papa is correct, shale production would actually decrease in 2020 from the December highs. Why? Current average shale output is 8.6 mb/d. His 0.4 mb/d would get shale to 9.0 mb/d versus the current December output of 9.1 mb/d. Rystad would have shale oil hitting 9.7 mb/d, which would mean an additional 0.7 mb/d average above the current December estimate of 9.1 mb/d.

Who's correct? Who knows. After following shale for over two years, I can say that no one probably truly knows.

What I can say is that rig counts have declined from a peak of 888 in November of 2018 to a current figure of 663 in early December 2019. During that time we have shale oil production going from around 7.0 mb/d to 9.1 mb/d. So as rig counts have declined during the last 12 months plus, oil production continues to increase. Part of this has to be driven by productivity gains and the other part is probably driven by the fact the DUC (drilled but uncompleted) counts have declined from 8,798 in January 2019 to an October total of 7,642.

You can only use up your DUC wells for so long. If oil rig counts don't start increasing soon, Mark Papa is likely to be more accurate than Rystad.