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June 11, 2020

Permian shale outlook as operators adapt to current sector crisis

By GlobalData Energy

Permian Basin is currently experiencing the largest drop in production in US Lower 48, producing at approximately seven million barrels of oil equivalent per day (mmboed) and 4.8 million barrels per day of oil (mmbd), representing a drop of 7% from March high.

As many producers are announcing capital expenditure (CapEx) cuts and oil production curtailment, GlobalData estimates that crude oil production decline in Q2 amounts to approximately one mmbd, with Chevron leading the production drop of 200,000 barrels per day (mbd), followed by ExxonMobil with 100 mbd, and subsequently, EOG, Cimarex Energy and Noble Energy of 40 mbd per company.

Many operators are readjusting their CapEx, putting a halt in development activity, releasing and reducing their rigs and completion crews until oil prices recover. Per GlobalData analysis of 26 companies with initial CapEx guidance of $35.3bn, the cumulative reduction in CapEx sums up to approximately $18bn, approximately 48% cut from the initial guidance and compared to the 43% cut during the first-time round of CapEx reductions.

Permian Drilled Uncompleted (DUC) well count is at a substantially high level, currently counting at approximately 3,500 wells and representing 45% of the entire US DUC well stock. GlobalData expects a depletion in inventory when the oil price recovers above $45 per barrel as companies will start employing more completion crews to put DUC wells in production before ramping up rig activity.

Per GlobalData analysis of 19 companies, 11 companies were hedging more than 50% of their production, therefore, averaging a realised price of $44.23 per barrel of crude oil in Q1 2020. However, that number is expected to reduce throughout 2020 assuming the low oil price environment sustains.

Permian Basin is currently producing approximately 15,840 million cubic feet per day (mmcfd) of natural gas, still above the current gas pipeline capacity. However, associated natural gas production will decline as oil wells production is curtailed, which might subsequently impact the timeline of some future pipeline project to be pushed further back.

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