Permian Basin leads decline In U.S. Shale

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U.S. shale production is set to fall to a two-year low in the coming weeks, with the Permian basin leading the way down.

In the latest Drilling Productivity Report, the EIA estimates that oil production from the country’s leading shale basins is set to fall by 197,000 barrels per day in June compared to a month earlier. The Permian is set to lose 87,000 bpd, but other losses come from the Eagle Ford (-36,000 bpd), Anadarko (-28,000 bpd), Niobrara (-24,000 bpd) and Bakken (-21,000 bpd).

U.S. natural gas production is also set to fall in June by about 1 percent, or 779 million cubic feet per day (mcf/d). Notably, the nation’s largest gas producing region in Appalachia loses a relatively modest 85 mcf/d. Instead, much deeper declines from associated gas production in the Permian (-210 mcf/d) and the Anadarko (-244 mcf/d).

The larger decline in Permian gas compared to the Marcellus is a reflection of the fact that natural gas prices were already in the dumps prior the pandemic, wallowing below $2/MMBtu. Marcellus drillers began cutting late last year. Natural gas prices didn’t change much after the pandemic (in fact, natural gas prices briefly rallied). Meanwhile, the much larger loss of gas production in the Permian has more to do with the sharp downturn in oil drilling. Texas gas followed oil on the way up, and it will follow oil on the way down.

The data from the EIA shows that the decade long U.S. shale boom has come to a screeching halt and is now heading in reverse. Oil production from the top shale basins will dip to 7.8 million barrels per day (mb/d), rewinding output back to late-2018 levels.

There is now a confounding disconnect between the health of the U.S. shale industry on the ground and the stock prices for a variety of energy companies. Part of that can simply be chalked up to the rally in oil prices from worthless levels (or less than worthless) to above $30 per barrel in the course of a few weeks.

But the Federal Reserve is also pumping trillions of dollars into the stock market, while also more directly buying up corporate bonds of energy companies. The central bank is even buying up bonds from shale companies that recently declared bankruptcy.

Occidental Petroleum has spent millions on lobbying for help, even going as far as telling its workers to write letters to Congress. When the Federal Reserve changed its standards in April to allow larger companies to take advantage of its Main Street Lending program, the switch allowed Occidental to qualify.