Major slowdown in US oil production predicted

Major slowdown in US oil production predicted

By Ken Childers

ONL Editor

Oil and gas activity is already slumping across the United States, and analysts are predicting the industry is about to face even tougher times.

According to Baker Hughes, the nation’s rig count fell by 264 last week from one year ago when the count was 1,081. Last week, there were 817 oil and gas rigs reported. Oklahoma’s count remained at 51, but activity has slowed dramatically compared to one year ago when 148 rigs were reported.

The downtrend appears to be holding fast locally, as only one new drilling permit has been issued since Aug. 26 in Okfuskee County, according to OK Energy Today.

Last Thursday, IHS Markit, a data and information services business that caters to a variety of industries including the energy sector, released a report containing an ominous prediction: Production will grow by only 440,000 barrels per day next year, not quite half the increase the U.S. Energy Information Administration has projected.

IHS Markit sees growth flattening in 2021 and rising modestly in 2022. The most recent data shows U.S. oil production at 12.6 million barrels per day.

“Going from nearly 2 million barrels per day annual growth in 2018, an all-time global record, to essentially no growth by 2021 makes it pretty clear that this is a new era of moderation for shale producers,” said said Raoul LeBlanc, vice president for North American uncoventionals, IHS Markit. “This is a dramatic shift after several years where annual growth of more than one million barrels per day was the norm.”

According to the report, the key challenge for producers now is to meet investors’ new focus on return of capital. This comes at a time when companies are facing a prolonged period of lower prices and when access to financing from capital markets has become difficult. Exploration and production (E&P) companies are trading at multiples that are half to one-third of what they were in 2017, and debt markets are unwilling to provide fresh debt for all but the largest shale players, the report says.

West Texas Intermediate crude oil prices are predicted to average $50 per barrel next year, impacting oil patch operations in 2020. IHS Markit anticipates a nearly $20 billion drop in onshore drilling and completions spending over the next three years.

If IHS Markit’s predictions hold true, Oklahoma – where one in five jobs are directly or indirectly supported by the oil/gas industry – will likely feel the impact.

“During the recent oil slowdown, our state’s economy still grew by one-half percent, which shows a diverse economy. But if the slowdown continues, Oklahoma will see a decline in tax revenue,” said State Senator Roger Thompson, R-Okemah.

Oklahoma ranks fourth in the nation for oil production and annual operations from oil and natural gas industry generate one dollar out of every five dollars in gross state product.