IHS sees second-half end of US output surge

Expectations are moderating about growth of oil production in the US this year.

A report by IHS says the US production surge may end by midyear as low oil prices crimp output from tight formations.

“Growth is still expected in the early months of 2015, but that momentum will level off in the latter half of the year amidst prices at lows not seen since the 2008-09 Great Recession,” IHS said in a press statement.

A study of 39,000 wells indicated month-to-month growth will cease in the latter half of 2015 if the price of West Texas Intermediate crude remains below $60/bbl.

About one fourth of new wells in 2014 had break-even WTI prices below $40/bbl, according to the study. Slightly less than half the new wells had break-even prices below $60/bbl. Nearly 30% of new wells had break-even prices above $81/bbl.

The study defined “break-even” as the WTI price needed to cover capital and operating costs and yield a 10% return.

Sustaining drilling this year are hedging programs, work to finish uncompleted wells, contractual obligations, and drilling of the most economic tight oil plays, the study said. “But adverse economics and lower spending will lead to fewer wells drilled than in 2014.”

The study projected monthly average US production at the end of 2015 about 500,000 b/d above the January 2015 level. Nearly all the growth will have come in the year’s first half.

IHS Energy Vice-Pres. Jim Burkhard said US production next year might flatten or decline if oil prices stay low and confidence in future prices remains shaken.

“But there is plenty that could happen—a recovery in oil prices, lower upstream costs, and improved well productivity—that would quickly change the calculus of drilling new wells and reinvigorate US production growth,” he said.