North American shale oil perspective A unique perspective on the evolution of the North America shale oil market to 225, combining data and insights from a suite of advanced energy market forecasting analytics Sample report based on findings from our North American Shale Oil Outlook to 225
Recent development in the Permian, driven by favorable economic conditions, is leading the new growth in the North American shale oil market Key insights
1 US shale oil production will reach ~9 Mb/d by 225 US shale oil production will reach ~9 Mb/d by 225, but production can vary by 5.4 Mb/d depending on oil price scenarios. 2 The Permian's core breakeven is less than $41/bbl in 217 Low breakeven is enabling the Permian to remain profitable despite well cost increases of 3%. 3 The Permian is experiencing 1x the IP of Eagle Ford and Bakken combined The Permian s IP growth rate for the past five years was 2% compared to Eagle Ford and Bakken (2%), and the Permian has more remaining drilling locations as it is still in the early development stage. 4 Total capex will grow at 25% p.a. through 221 Increased drilling and completion activity will require total capex spend to grow to near 214 spend levels; however, production will have nearly doubled since 214. 5 Drilling and completions to grow by 2% p.a through 221 Under the base Price Recovery scenario (WTI $6-7/bbl from 219 onward), drilling and completions are expected to grow rapidly at 2% p.a., and production will grow at 12% p.a. through 221.
North American shale oil is a technology-driven success story However, it created an oil oversupply that led to an oil price fall of 5%, and an active rig fleet fall of 8% from 2Q14 to 1Q16. Midland basin oil IP growth factors bbl/day +33% Since 2Q16, spurred by price recovery, drilling activity has more than doubled. Key operational improvements are helping the shale oil industry endure low oil prices in this dynamic market environment. Despite possible short-term constraints of capital, rig, and labor availability, the market is poised for a new chapter of growth, driven by activity in the Permian. Key operational improvements such as improving efficiencies, completion design, and high-grading have sustained and will continue to drive growth despite the foreseeable cost escalation of 15-25% in the next two years. Operators have reduced drilling days by five days while improving IP by 33% from 214 to 216. 214 Longer laterals Midland basin drilling days Number of days by year Highgrading -8% p.a. Improved frack design Moving 216 Drilling 21 11 12 13 14 15 216 214-216 5% 8% 33% Oil price Rig count 5Drilling days IP
Low service costs have enabled high-proppant experimentation Improved completions design (e.g. high proppant wells) Water usage Sand usage Million gallons Million lbs 1 1 Low service costs have enabled high-proppant experimentation. When higher activity levels put inflationary pressure on completion costs, the benefit from higher IP diminishes. Basins with higher breakevens will be most sensitive to this. 5 +264% 5 +13% 5.2 2.6 2.6 Base well High prop Base well 9.5 High prop is increasing the IP by 35%... Peak oil IP kbbl/d 1,5 1, 5 2.6 Base well +35% 5.2 High prop but its benefit is sensitive to oil price and service costs Marginal NVP change vs. base well design USD M Increase in change of costs Base (1.79).24.79 1.35 +5% (1.5) (.5).6.61 +1% (1.79) (1.23) (.68) (.12) $35 $45 $55 $65 Oil prices (WTI) scenarios 13% 264% 35% Water usage Sand usage High propant well IP
Initial production bbl/d Bakken Nesson Anticline 1, 75 5 25 1, 75 5 25 +2% p.a. 212 13 14 15 216 Eagle Ford Volatile oil tier 1 +2% p.a. Remaining drill locations Number of wells Bakken Nesson Anticline 71,661 Eagle Ford Volatile oil tier 1 162,51 The Permian s IP growth rate for the past five years was 2% compared to Eagle Ford and Bakken (2%), and the Permian has more remaining drilling locations, both due to its sheer size and the relative infancy of unconventional exploration there. 212-216 2% p.a. Permian IP increase 212 13 14 15 216 Permian Delaware Wolfcamp oil tier 1 1, +2% p.a. Permian Delaware Wolfcamp oil tier 1 75 5 25 596,131 212 13 14 15 216 The Permian is experiencing fast IP growth relative to other basins, and has a much larger drilling inventory
WTI vs. half-cycle breakeven prices for varying well cost increases from 216 to 217 USD/bbl 7 65 Permian-Delaware core 1% well cost increase 2% well cost increase 3% well cost increase WTI WTI forecast under Price Recovery 6 55 5 45 4 35 215 216 217 218 The Permian s average core breakeven price for 217 is less than $41/bbl, enabling the Permian to still be profitable despite well cost increases of 3%. Operators of all types are entering the Permian or increasing their acreage position (top 1 E&P M&A deals since 214 sum ~$34 billion). 217 $41/bbl Average breakeven price in Permian
Going forward Going forward, under the base Price Recovery scenario (WTI $6-7/bbl from 219 onward), drilling and completions are expected to grow rapidly at 2% p.a., and production will grow at 12% p.a. through 221, then plateau thereafter. Increased drilling and completion activity will require total capex spend to approach 214 levels; however, production will have nearly doubled since 214. 214-221 2% p.a. US shale oil drilling and completions growth 12% p.a. US shale oil production growth US shale oil new well completions Wells per year US shale oil drilling activity Average number of rigs per year CAGR 216-21 CAGR 221-25 15, US Hz Rigs Well completions 9 8 7 21% 1% 1, 6 5 4 19% -2% 5, 3 2 1 214 15 16 17 18 19 2 21 22 23 24 225 US shale oil production MMBbl/day 3.6 4.3 3.9 4.2 4.8 5.5 6.3 6.9 7.4 7.9 8.3 8.6 12% 6%
US shale oil production will reach ~9 Mb/d by 225, but production can vary by 5.5 Mb/d depending on oil price scenarios US shale production outlook Mbbl/d 11 1 9 8 7 6 5 4 3 2 1 Other US LTO Bakken Eagle Ford Midland Delaware Geopolitical shock (high case) Technological revolution (low case) 214 15 16 17 18 19 2 21 22 23 24 225 5.5 9Mb/d US shale oil production by 225
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