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Sharp Drops in Natural Gas Production

Energy

By Joseph Warner  |  May 21, 2020

Oil shut-ins across various U.S. oil production regions have resulted in a drastic drop in U.S. oil production over the last several weeks. We revisit implied oil shut-ins across several basins based on updates to our modeled daily gas production. The basis for this analysis relies on the nature of associated gas production in liquids-focused plays. Because these plays produce significant volumes of natural gas in addition to crude oil, measuring the impact of shut-ins on gas production serves as a proxy for shut-ins on crude production.

decreases-in-bakken-gas-production-imply-substantial-in-basin-oil-shut-ins-in-may-2020

Despite the recent (modest) recovery in crude prices, differentials for Bakken crude have widened as prices in the basin remain near $10/bbl, incentivizing continued shut-ins. Modeled daily gas production in May has declined by around 33% from average levels in March, implying a real-time reduction in crude output of around half a million barrels a day in May. Announcements from major players support the idea of significant near-term curtailments:

  • Continental, with cuts up to 70% in May and ongoing cuts into June
  • Enerplus, with a 25% cut to volumes in May, continuing through at least June
  • Oasis, with a 25% cut in April and more significant cuts expected in May

while-not-as-severe-as-the-percentage-decline-seen-in-the-bakken

Curtailments Announcements by Independents and Majors

The Permian, with a recent decline in modeled gas production of 14%, doesn’t show as much drama as the Bakken decline. However, with the higher level of total production in the basin, even a modest percentage decline implies a substantial reduction in total crude productionin this case, around three-quarters of a million barrels a day in May. After the prolific development of the basin over the last few years, both independents and majors have made announcements about cutting back on drilling, completions, and shutting-in production. ExxonMobil, Chevron, WPX, EOG, Occidental, Parsley, PDC, Pioneer, and others have explicitly announced oil curtailments that in total amount to hundreds of thousands of barrels per day of Permian production in Q2 2020.

declines-in-the-dj-and-powder-river-basins-also-imply-significant-liquid-curtailments

To the north, in the Denver Julesburg (DJ) and Powder River Basins, recent modeled gas production has fallen off by almost 20% from March levels, implying significant shut-in oil volumes in May. Several prominent operators in the Rockies have announced curtailments to their production portfolios, including Noble Energy, Occidental, Devon Energy, EOG, and Chesapeake. Decreases in modeled gas production indicate that some producers are curtailing production.

Conclusion

As operators navigate markets amid the uncertainty of a world still disrupted by COVID-19, BTU Analytics continues to monitor U.S. oil and gas production dynamics closely. For a more detailed look at shut-in announcements by various producers, a more comprehensive assessment of crude shut-ins by basin through time, and our analysis of changing U.S. oil and gas supply-side fundamentals, check out BTU Analytics’ latest Upstream Outlook.

This article was originally published on the BTU Analytics website.

This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.

BTU oil and gas data

Joseph Warner

Energy Analyst

Mr. Joseph Warner is an Energy Analyst at FactSet. In this role, he focuses primarily on power market data and analysis. Prior, he worked on income tax compliance and consulting for private equity-backed upstream oil and gas entities at Moss Adams. Mr. Warner earned a B.S. in Accounting and Financial Management with a minor in Economics from the University of Colorado Denver.

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The information contained in this article is not investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.