The total number of started fracturing operations will end up below 300 wells in April (close to 200 in the Permian basin and less than 50 wells each in Bakken and Eagle Ford)—a 60% decline in started fracturing operations between the peak level seen in January to February 2020 and April 2020—as the majority of public and private operators implement widespread fracturing holidays, according to Rystad Energy estimates.
In March, Rystad observed an extreme 30% monthly decline in the number of started fracturing jobs in the three major oil basins, a fall from 807 in February to 550. Nationwide fracking activity, on a completed jobs basis, may have already declined by around 20% in March.
“With such a rapid decline in fracking already visible, very little activity will be happening in the oil basins during the remainder of the second quarter of 2020. The natural base production decline, which we have seen as an absolute floor for production, therefore becomes an increasingly relevant production scenario,” said Artem Abramov, head of shale research at Rystad Energy.
“If we assume that no new horizontal wells are put on production from April 2020 onwards, total LTO production will decline by 1 million b/d by May, 2 million b/d by July, and by 3 million b/d by October to November, with the Permian basin accounting for more than half of nationwide base decline.”
Production cuts
US light oil operators, which are now announcing voluntary production curtailments, will try to deliver on these cuts as much as possible from the natural production decline, as opposed to shut-ins of producing wells (though some of the marginal, least economic volumes are being shut in, too).
“The magnitude of the base decline for US LTO sounds extreme in the context of what we see for other supply sources globally. But ironically, the steep decline is actually too late to save prices; despite the oversupply issue, standard operation patterns prevent operators from simply turning the faucet off. These days Permian wells require about 2 months from the moment fracturing operations start until they produce first oil, and require about 3 months before they reach peak output.”
Hence, the decline in started jobs which began in March will result in a lower number of wells put on production in May, which ultimately will lead to a drop in peak production in June if normal operational patterns are maintained.
“On the demand and storage side, the market is already moving through its toughest challenge yet, and the WTI front-month sell-off emphasized how broken the physical market might be already. We are therefore concerned that significant production shut-ins will be required in the next few weeks to bring the market into the balance in a brutal manner,” said Abramov.
