by Dennis Coyne

I have attempted to correct the reported Texas output using the methodology provided by Dean. Usually Dean provides the spreadsheets and I simply reproduce his charts with a few comments.  This month Dean may be on vacation or busy and I have not yet received his input. If I get his charts I will post them.

Dean uses the average of the correction factors from Jan 2014 to the present in order to reduce the month to month volatility of the correction factors.  I tried several averaging methods (all data, 12 month average, 6 month average, and 3 month average) where for the x month average the most recent x months of correction factors were averaged.

The only method with a significant difference was the 3 month average, so I present the “corrected” output using Dean’s usual method and an “Alt (3 month)” alternative. The RRC data and the EIA estimate are also included for reference.

Last month’s “corrected estimate for TX April crude plus condensate (C+C) was 3511 kb/d, which is revised to 3451 kb/d this month (60 kb/d lower), May output fell by 78 kb/d (2.3%) to 3374 kb/d. The “Alt (3 month)” estimate is 3385 kb/d for April 2016 and 3288 kb/d for May 2016 (a 3% decline). The EIA estimate for April 2016 is 3230 kb/d.

Data for estimates below, separated by commas:

Month, RRC, corrected, alt(3 mo), EIA
Jul-15, 3357, 3462, 3468, 3452
Aug-15, 3316, 3439, 3442, 3413
Sep-15, 3294, 3438, 3438, 3415
Oct-15, 3265, 3436, 3431, 3404
Nov-15, 3229, 3430, 3419, 3409
Dec-15, 3160, 3399, 3386, 3348
Jan-16, 3167, 3454, 3437, 3361
Feb-16, 3110, 3455, 3428, 3315
Mar-16, 3035, 3452, 3408, 3277
Apr-16, 2948, 3451, 3385, 3230
May-16, 2674, 3374, 3288

The average output for the “corrected” estimate from the March 2015 peak to May 2016 is 3461 kb/d and for the “alt-3 month” estimate the average since the peak is 3447 kb/d. The chart below shows the linear trend over that period using least squares to fit the line. For the corrected estimate the annual decline rate is 113/3461=3.3% and for the alt-3month estimate the annual decline rate is 186/3447=5.4%.

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Last month’s corrected estimate for April 2016 natural gas output in TX was 24,623 million cubic feet per day (MMCF/d). This month the April 2016 natural gas estimate was revised to 24,046 MMCF/d (577 MMCF less, 2.4% lower), May output fell by 660 MMCF/d to 23,386 MMCF/d a 2.8% decline in one month.

The annual decline rate for Natural Gas output in Texas since April 2015 (near term peak) is shown in the chart below. Average output over the period in the chart is 24,208 MMcf/d for the “corrected estimate” and 24,093 for the “alt-3 month” estimate.  The annual decline rate is 943/24208=3.9% for corrected and 1262/24,093=5.2% for alt-3month.

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I collected RRC data for the Eagle Ford and determined the percentage of total Texas output from the Eagle Ford play. This percentage was multiplied by the “corrected” estimate for Texas to obtain an estimate of Eagle Ford output, which is shown below.

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Output peaked in March 2015 at about 1600 kb/d and has fallen to about 1276 kb/d in May 2016, the alternative estimate using only the most recent 3 months of correction factors reduces the May 2016 estimate to 1243 kb/d.

The decline rate since the March 2015 peak is about 18% per year, average output over that period was 1416 kb/d, annual decline is 262/1416=17.8%.

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Eagle Ford output was from the following fields: Eagle Ford 1, Eagle Ford 2, Briscoe Ranch, Sugarkane, De Witt, Hawkville, Gates Ranch, Southern Bay, Giddings, and Cypress Landing. Other fields listed as being Eagle Ford fields had negligible output over the 2014 to 2016 period.

The Texas Permian Basin consists of Districts 7C, 8, and 8A in Texas. The same method as before was used to estimate TX Permian Basin C+C output in kb/d. Output of C+C dropped by 47 kb/d in May 2016 from 1754 kb/d to 1707 kb/d.

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The combined Eagle Ford and TX Permian basin output is shown in the chart below in kb/d.

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The two fields combined fell by 55 kb/d in May from 3038 kb/d to 2983 kb/d.
Based on these estimates, much of the decline in Texas output has been from conventional fields outside the Permian basin. The combined output of the TX Permian and Eagle Ford peaked in March 2015 at 3107 kb/d and in May 2016 had fallen to 2983 kb/d, a decrease of 124 kb/d. If there was about 497 kb/d of output outside these two plays in Texas in March 2016, this conventional output has fallen by 107 kb/d to 390 kb/d, about a 24% decline since the peak (this is not an annual decline rate as it is over 14 months).

In any case the rapid rise in Permian basin output has kept Texas C+C from declining very steeply.

If oil prices remain low for the medium term (5 years or so), Permian basin output might not continue to rise, the drop of 78 kb/d in May’s TX C+C output is likely to continue unless oil prices rise above $65/b.

The raw RRC data from Sept 2014 to May 2016 (most recent data point from each set of data) is shown in the chart below.

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Correction factors for TX C+C from April 2014 to May 2016 in the chart below for most recent 12 months (T to T-11).

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Natural Gas correction factors are shown in chart below.

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A conservative Eagle Ford Scenario is presented below, new wells added falls to 105 new wells per month from an average of 164 new wells per month for the June 2015 to May 2016 period. The number of new wells added per month remains at 105 from Sept 2016 to Dec 2023. Output falls to 1100 kb/d in Dec 2016 and 1000 kb/d in Dec 2017.

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A conservative Bakken scenario below shows output falling to 850 kb/d by Dec 2016 and to 825 kb/d by Dec 2018. The number of new wells added gradually increases to 64 new wells per month by Feb 2017 and remains at that level until 2023.

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I do not have a model for the Permian basin, but I assumed output would remain at May 2016 levels for 9 months and then decline by 1% per month for 12 months, level off for 10 months, and then decline more slowly at 0.5% per month until 2023. This Permian scenario is combined with the Bakken and Eagle Ford Scenarios above to give an LTO scenario for the “big 3” LTO plays from 2013 to 2023.

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Output falls from about 4000 kb/d in May 2016 to 3680 kb/d in Dec 2016 and to 3360 kb/d in Dec 2017.

This scenario would be consistent with oil prices rising to $80/b by June 2017 and remaining in the $75 to $85/b range until 2023. Higher oil prices would be likely to result in higher output levels, but it is doubtful that output would rise above the March 2015 peak (4236 kb/d) for these three plays combined, even if oil prices rise to $120/b by 2020.

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