The steady fall of the US onshore drilling rig count is increasingly raising questions about whether US oil production will grow in 2020. However, even a flat activity scenario will still unlock substantial new volumes of US tight oil, according to Rystad Energy.

Rystad Energy, the independent energy research and consulting firm headquartered in Norway and with offices across the globe, has quantified growth scenarios for the four major liquids basins in the US: Permian, Eagle Ford, Bakken and Niobrara. In the third quarter of 2019, the “Big Four” basins delivered almost 8 million barrels per day (bpd) to the market, according to Rystad Energy data, thereby exceeding 1 million bpd in year-on-year growth.
“While there is consensus that modest production additions will likely persist, we are clearly witnessing significant deceleration in the pace of this growth,” says Artem Abramov, head of shale research at Rystad Energy. “The impressive 2 million bpd year-on-year increase in US oil output seen in 2018 is not about to be repeated, neither in 2019 nor in 2020.”

When it comes to activity levels, Rystad Energy has considered four scenarios, while bearing in mind that the recent decline in rig counts is likely to imply that no more than 3,000 completions/put-on-production wells will be drilled per quarter in early 2020 as a running rate for activity. In the “Conservative” scenario we assess a case whereby drilling activity falls to 2,700 wells per quarter, whereas the “Flat” scenario is based on activity being frozen at 3,000 wells per quarter, which is the expected activity level in the fourth quarter of 2019. Conversely, “High” is based on 3,000 wells per quarter. With early communication from selected E&P companies regarding plans for 2020, we expect that activity next year will largely be range-bound somewhere between the conservative and flat scenarios unless oil prices rise considerably.
“This analysis would seem to indicate that the latest decline in rig counts, along with a heightened focus on capital discipline, could severely undermine the ability of US onshore oil to maintain growth. However, we should bear in mind that production levels can be enhanced – even in a flat activity scenario – through improvements in operational efficiency. Productivity gains of just 2.5% per quarter, for instance through longer lateral wells, would unlock as much as 1.6 million bpd of additional US onshore oil supply in the fourth quarter of 2022 in the flat activity scenario,” Abramov added.
Essentially, this would result in a higher production level than in the “High” activity scenario without any changes in well productivity. Towards the end of the considered forecast period, the industry is unlikely to sustain 2.5% productivity improvements per quarter, but the short-term upside from increasing average laterals is still able to push up the average well performance. Hence, some productivity gains will likely persist between 2020 and 2022, unlocking more volumes for each activity level than the ones shown in the chart above.