1. Conclusions
Key Points
Selected References
- Since the conclusion of this study in Dec, 2015, crude price
extended its down fell to under 30 USD/BBL as predicted.
- The current market expectation has caught up with actual
supply demand in terms of storage predication. Price likely
to be stable in near term.
- In newest production data, Permian basin continues to
maintain its high production level, now reaching over 2
MMBBL/D.
- Bakken and Eagleford’s production continue to deteriorates
as expected with Eagleford leads the loss (-25% in 6
months).
API. (2015). U.S. API Weekly Crude Oil Stock. Retrieved
December 3, 2015, from http://www.api.org/Publications-
Standards-and-Statistics/Statistics/API-Weekly-Statistical-
Bulletin
Ashayeri, C., & Ershaghi, I. (2015, September 28). OPEC
and Unconventional Resources. Society of Petroleum
Engineers. doi:10.2118/174961-MS
BakerHughes. (2015). North America Rig Count. Retrieved
December 3, 2015, from http://phx.corporate-
ir.net/phoenix.zhtml?c=79687&p=irol-reportsother
BP. (2015) BP Statistical Review of World Energy. (2015).
London: BP.
Curtis, T. (2015). US Shale Oil Dynamics in a Low Price
Environment. Retrieved November 30, 2015, from
http://www.oxfordenergy.org/2015/11/us-shale-oil-
dynamics-in-a-low-price-environment/
EIA. (2015) Summary of Weekly Petroleum Data. Retrieved
Feb 3, 2015, from http://ir.eia.gov/wpsr/wpsrsummary.pdf
Fattouh, B. (2015). Global Oil Markets-Current
Development and Future Prospects. Retrieved November
30, 2015, from
http://www.oxfordenergy.org/2015/07/global-oil-markets-
current-developments-and-future-prospects/
Oil Price Outlook (Dec. 2015)
Netback at Wellhead Prod. Basis/Contract. Obligations
New Developments (Feb. 2016)
The Future of the Three Major US Unconventional Oil Plays under
Low Oil Price
Yang Zhou1, Farzam Javadpour2 , Eric van Oort1
1 Department of Petroleum and Geosystems Engineering, University of Texas at Austin, Austin, TX
2 Bureau of Economic Geology, University of Texas at Austin, Austin, TX
Objectives
1. The fundamental supply demand approach was used to develop a
view for the crude price movement as of Dec. 2015.
2. The wellhead price (netback at wellhead) of crude across the three
major unconventional basins in the US were studied for the return on
investment. The price limiter of each basin were identified.
3. The production basis and contractual obligation of each basin were
studied to assess the production resilience in low price environment.
Table 1, API Storage Injection/Withdrew Report and Forecast
The red color indicates a larger storage built (or smaller
withdrawal) compares to the forecast, indicating a looser supply
and demand balance. As of Dec. 2016, the US market is still not
in pace with the actual of over-supply, under-predicting six out
nine times in the past two months (Oct.-Dec., 2015). The
historical high storage level also hint the supply and demand
balance is not tightening any time soon. Price increase in the near
term is unlikely.
Despite WTI at 30 USD/BBL, the actual realized wellhead price for
US unconventional producers can be much lower due to high
transportation cost or crude quality issues. Permian basin has the best
return in investment out of the three.
According to the fundamental supply and demand model, when
an over-supply situation took place, commodity price is unlikely
to increase from its current level; vice versa. The storage report
and forecast are used to assess market’s sentiment the supply and
demand balance.
Negative pricing appeared for Bakken Source Crude is due to lack
of take away capacity according to Flint Hills.
Bakken and Eagleford have gone through heavy consolidation where
top producers account the majority production in those two basins. In
addition, those top producers are not bounded by contracts to drill in
order to keep their leases. In contrast, Permian basin has a more diverse
production base, and most producers are contractually bounded to
continue drilling to keep their lease. Companies operate in multiple
above mentioned basins have reported to shift resources to focus on
Permian. Permian is expected to be the most resilient basin out of the
three top unconventional plays in the US.
- Crude price is likely to remain low as the over-supply
situation persists with historical high storage level.
- Bakken and Eagleford production is expected to drop
drastically due to low return in investment and no
contractual protection.
- Permian basin is expected to be the most resilient in the
low price environment because of its good return in
investment, diverse production base, and contractual
protection.