McKinsey’s Shale Forecast
A recent article in “World Oil” offered a summary of consulting firm McKinsey Energy Insight’s (MEI) “North American Shale Outlook”. MEI’s forecast assumes oil prices ranging from $60-$70 per barrel from 2019 onward. At these prices the firm projects that shale related drilling and completion activity will increase by 20% per year through 2021. Concurrently, they expect shale oil production to increase by 12% annually, reaching a peak of 9 million barrels of oil per day (bopd) by 2025. To put this in perspective, total oil production (both conventional and shale) is expected to reach only 10 million bopd this year. However, MEI hedges by saying their estimate could vary by as much as 5.4 million bopd.
When prices collapsed in 2014, profit margins for shale were compressed, and activity in the shale basins fell off dramatically. However, since the second quarter of 2016 shale drilling has more than doubled. As a result of increased drilling efficiencies, better completion designs and high-grading prospects, initial production rates on new wells have increased 35%. Of course, some of these gains have come at a cost, such as additional volumes of sand and water for frack treatments. MEI sees these trends continuing and helping profit margins recover. They contend that this will result in activity spreading beyond the premier shale basins.
With more profitable operations, the number of well completions could grow at an annual rate of 21% until 2021. However, to achieve this level of growth would require capital investments increasing by 25% over the same period, to roughly 2014 levels.
In spite of more broadly based future activity, MEI sees the Permian Basin remaining the premier shale oil play for the next decade due to its resource quality and size, proximity to markets, and existing infrastructure.
To read the article in its entirety, please go to http://www.worldoil.com/news/2017/6/28/mckinsey-energy-insights-expects-us-shale-production-to-reach-9-mmbpd-by-2025 .
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