Permian Basin Leads Shale Production, Lags in Productivity
U.S. crude oil production continued its stable growth yet remained below pre-pandemic levels (1% MoM/ 6% YoY/ -6% YoY3). On the other hand, shale oil production rose steadily and exceeded pre-pandemic norms last year (1% MoM/ 10% YoY/ 1% YoY3). Shale oil drilling occurs in seven regions; roughly two-thirds of output comes from the Permian basin, the sole location that surpassed pre-pandemic times. Strong performance is also registered in the Appalachia region, but its share of around two percent makes it insignificant.
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Even though the Permian basin led production, it lagged in productivity. Bakken, Eagle Ford, and Niobrara represented the top three most productive basins, while it placed fourth. Notably, productivity per rig across all shale basins stagnated or registered a low single-digit decrease. Yet more than half significantly improved productivity per rig compared to pre-pandemic periods. Declines in productivity per rig did not stem from a higher rig count because the number of oil and natural gas rigs fell (-2% MoM/ 18% YoY/ -11% YoY3). Although it is encouraging that the average frac fleet count climbed during the same period, meaning despite fewer rigs, more oil could come online soon (4% MoM/ -3% YoY/ -15% YoY3).
Producers have applied different approaches to increase output. In some regions, like Eagle Ford, companies focused on expanding the number of completed rigs. In others, like Appalachia, companies choose to improve productivity per rig instead. Overall, producers prioritized profitability in their strategy and aimed to remain flexible in decision-making as the pricing environment is volatile. Noticeably, compensation packages for executives have shifted to incentivize free cash flow and return on capital rather than exploration and production.