The Energy Information Administration(EIA) releases another EIA Drilling Activity report that raises its estimates for shale oil production without considering the realities on the ground. According to the report, EIA says that U.S. shale oil production will increase by 111,000 barrels a day to 6.55 million barrels a day in February next month and that production in the Permian Basin will surge by 76,000 barrels a day.
Yet, producers working hard in the shale patch still think the EIA is overestimating production. Those overestimations in output is one reason oil supply in the U.S has fallen like crazy. While drilling in the Permian Basin has turned into Perma-mania, we must be very careful to not overestimate its numbers.
Tsvetana Paraskova of OIL PRICE writes “According to Wood Mackenzie, signs have started to emerge that the relentless intensification of drilling leads to diminishing returns, and pumping twice as much sand as usual into Permian wells and drilling longer laterals doesn’t deliver commensurate volumes of oil”. Still, Woodhack suggests that drillers could ‘change the laws of physics’ and that these signs of setbacks may actually be growing pains.
She goes on to say that in addition, drillers may soon start to test the Permian region’s geological limits. And if E&P companies can’t overcome the geological constraints with tech breakthroughs, Woodhack has warned that Permian production could peak in 2021, putting more than 1.5 million bpd of future production in question, and potentially significantly influencing oil prices. She also writes that U.S. drillers will have to contend with the drive in the shale patch to heed investor concerns and prioritize profits over production, and not “drill themselves into oblivion”, as oil tycoon Harold Hamm has warned.
The North Dakota number may also be high as reports are coming out that they may have to slow production. The Houston Chronicle reports that shale drillers “fearing sanctions by the state, some North Dakota oil drillers have begun cutting output to control the amount of natural gas that’s being burned off at well sites and wasted as a byproduct of crude production, industry and state officials say. Rebounding oil prices and technology advances in western North Dakota’s oil patch have goosed crude production, spurring unanticipated record levels of natural gas that comes with it”, said Justin Kringstad, director of the North Dakota Pipeline Authority.
