Decline, Baby, Decline !

US horizontal, tight oil production, including condensate, appears to have peaked in November of 2019 at 8.47 MM BOPD. Circumstances, some extenuating, others self-induced, caused the shale oil sector to fall off the drilling hamster wheel in 2020 and by January of 2021 tight oil production had fallen to 6.742 MM BOPD.

We lost 1.7 MM BOPD in just 14 months. If you had been standing behind that rate of decline you would have gotten sucked plum off your feet.

Courtesy shaleprofile.com

Over 60% of America's 6.742 MM BOPD of horizontal, tight oil production is now less than two years old. Based on known first year decline rates, that 4.0 MM BOPD will be down to 2.2 MM BOPD this time next year.

You need to let all that sink in a minute; the decline rate of this shale oil stuff is terrifying.

The 'growth-over-profit' business model of the US tight oil sector did a masterful job of covering up, of hiding just how steep shale decline really is. DUC's and junk bonds issued since October of 2020, the last hoorah for the shale sector now completely unable to raise outside capital, have caused pundits, once again, to focus on growth, not decline. A jump in rig HZ counts and analysts around the world go nuts speculating about a new "era" for shale oil.

But US shale oil can NOT maintain a 100% reserve replacement ratio, provide reasonable returns to investors, service and and deleverage legacy debt all at the same time, not at $55 oil it can't. It needs more credit. Declining reserves (assets) for the shale oil sector means they are done borrowing money; most now are already underwater with lenders and could not qualify for a pickup loan without their mama's co-signing the note for them.

In the mean time, what's happening with the 2.7 MM BOPD of tight oil, the old stuff, that was drilled between 2008 and 2018, the stuff that was going to last 25 years and make America energy independent?

It too is dropping like a rock.

Sixty percent (60%) of Eagle Ford HZ tight oil wells (15,731), 42% of Bakken (7,000), and 31% of Permian Basin (9,300) wells now make less than 25 BOPD... and water. On rod lift.

At $55 WTI, a 20-25 BOPD, 16,000 ft. TMD well making 100 BWPD is getting very skinny on net cash flow. One significant well intervention per year, like a fishing job for a TAC stuck in the top of a radius, and that well makes NO money.

Fewer produced barrels (decline and a <100% RRR) place a greater burden on remaining barrels to cover fixed costs like G&A and interest expense on debt; economic limits on wells are reached sooner.

And those 25 BOPD wells are STILL declining, by the way, at the average rate of 12-14% per year [terminal decline rates, shaleprofile.com]. In 2-3 years the 2.5 MM BOPD those 25 BOPD wells produce will be below 2.0 MM BOPD and those wells we be at, or very near, economic limits and awaiting cement tombstones.

Nobody is going to "buy" 15-20 BOPD shale oil wells, still declining, facing $100K each of plugging and decommissioning liability. That 2.o MM BOPD will simply... disappear.

In all of America's shale oil basins, save five or six counties in the Permian, horizontal tight oil is now going out the back door... faster than its coming in the front door.

Why did Vicki Hollub, the CEO of Oxy, say at CERAWeek a few weeks ago, to an audience of thousands, that the economics of the shale industry were quite difficult when it comes to producing profits, that "shale profitability is far more difficult that people ever realized?"

Decline, Baby, Decline.