The Shale Update – 9.22.2020: 2020 Drilling Activity to hit Historic Lows

The Shale Update - 9.22.2020: 2020 Drilling Activity to hit Historic Lows

What You Should Know About Oil and Gas Today

The Big Story

In its annual Mid-Year Update, World Oil Magazine estimates that domestic drilling will reach historic lows for 2020. Here’s an excerpt:

The historical basis. But first, operators will have to drill at a pace lower than those of 1933 and 1931, when well totals of 12,170 and 11,716, respectively, were tallied. The fact that we are looking at a level potentially below these two years—below 11,000 wells—is quite historical, albeit remarkably negative. And consider the fact that just last year, we estimate that somewhat over 22,000 wells were drilled, and in 2018, the number is estimated at approximately 25,000. By the same token, it wasn’t but six years ago, in 2014, that the U.S. well total was 45,535. There has not been an annual total above 30,000 since then.

Trends behind the performance. This year’s trend toward a total that may be below 11,000 should come as no surprise to anyone, who has been following oil market trends since early February. In the seven months that have followed, the U.S. market has been hit by a record, quick, oil demand reduction prompted by the coronavirus pandemic; the Saudi-Russian dispute over production quotas that exacerbated the effect of the demand reduction; operators’ quick response to low prices that ensued, including shutting-in wells and reducing or halting drilling; and a slower-than-expected recovery from the pandemic in the U.S. economy.

Operator responses to low prices and demand. To be more specific about operator activity, World Oil has received dozens of survey responses from producers, which have cut back their drilling from first-quarter 2020 levels, not just substantially but actually quite drastically.

Amazing. What a year 2020 has been.

Meanwhile, in other news…

Royal Dutch Shell says it plans to cut up to 40% of its costs related to producing oil and gas as part of its efforts to prepare for the “energy transition” that it and fellow European major BP say is “accelerating” in the wake of the COVID-19 pandemic. Shell says it is conducting an internal review designed to identify major cost-cutting opportunities, which will culminate in what it calls a “major restructuring”, corporate speak for tons of layoffs, in early 2021. Stay tuned.

S&P Global Platts reports that Tropical Storm Beta has had a minimal impact on Gulf of Mexico oilfield operations. SPGP reports that the storm caused only about 10% of the Gulf’s production to be shut-in, and that that production is already being put back online.

No one could’ve seen this one coming. NGI reports that residents in states bordering the Gulf of Mexico are overwhelmingly in support of continuing to drill for oil and gas in the Gulf. A new poll finds support levels at 70% in Alabama, 72% in Louisiana, 73% in Mississippi and 62% in Texas. Go figure.

Voters in Rust Belt states also support drilling and fracking, which is why Joe Biden keeps trying, and failing, to clarify his previous promises to ban fracking, and failing to do so. A new poll conducted by the Epoch Times shows that more than 39 percent of the likely and registered voters in the rust-belt states of Iowa, Michigan, Minnesota, Ohio, Pennsylvania, and Wisconsin support fracking, more than 33 percent oppose, and 27 percent are undecided.

ExxonMobil is getting read to sell off some of its older assets in the North Sea, and the sale is attracting some major bidders. Bloomberg says that China Petroleum & Chemical Corp., Kuwait Foreign Petroleum Exploration Co. and the U.K.’s EnQuest Plc are all competing to be the top bidder for the assets.

Crude demand is returning more quickly than the “experts” believe. That’s certainly the case in the huge, expanding market in India, where the nation’s national oil company says domestic demand will return to pre-COVID levels during the 4th quarter of this year.

If you want to have a better understanding of what is happening in oil world right now, read this op/ed by Daniel Yergin published in Monday’s Dallas Morning News. You will be glad you took the time.

That’s it for now.