Q3 is next – Hang on to your hats!
There is no doubt that I was 2 months early when I said September 2019 would be the highest production month ever for U.S oil production. Budgets were constrained for Q4 (cash flow reasons) and Volumes and lateral lengths had plateaued while the underlying decline rates had increased dramatically.
As it turned out, November 2019 was the all time high for U.S oil and it declined every month through March 2020 showing that oil growth for the country was no longer possible as budgets constrained, tier 1 inventory depleted and spacing accelerated declines while eating away EUR.
Now, with May data out- we see the shut ins that hit and declines were masked but with what has been an 80% drop in activity, it’s coming.
Q2 reporting season is almost over and it captured the worst of pricing, shut ins, contract terminations and activity drops… and average volumes over the quarter weren’t down so much. Q3 is where you see the real challenges hit: unit costs increase, service costs already as low as they can get, and companies desperate to stem base decline and protect their Debt: EBITDA covenants.
It’s about to get really ugly and I think the U.S ends the year at sub 10.4 mmbo/d. 5 months to go.
Hang on to your hats.
