All Dressed Up with Nowhere to Flow

Too little too late: US tight oil activity plummets in March, but not enough to prevent a historic crash in WTI

In the wake of the OPEC decision to increase output in the beginning of April, US tight oil operators acted decisively, cutting drilling and completion activity and shutting in wells. Though OPEC+ agreed on a 9.7 MMb/d slash in production, these cuts will not be nearly sufficient to balance the market in the near-term and WTI prices are not likely to rise to a level which would encourage US operators to resume activity.

Active fracs in US tight oil basins plummet to historic lows

After OPEC+ negotiations fell apart in early March, Kayrros observed a field flaring spike in Saudi Arabia just as the Kingdom announced it would increase output substantially. In the weeks that followed, Kayrros saw active fracs across the five major Lower 48 tight oil basins fall to the lowest level in the history of Kayrros satellite monitoring of the US shale patch. Not all operators are cutting activity significantly, though. Kayrros saw several significant Permian operators actually increase active frac spreads. These operators did drop active rigs, however, so they may plan to draw down on DUC inventory before cutting fracs.

Even as COVID-19 ground Chinese oil demand to a halt and prompt WTI prices fell below $50/b, Permian operators maintained 2020 budget plans, actually increasing active fracs in February; In the Permian, well completions rose to 492, the highest pace of completions in the basin since October 2019. This trend was short lived. When Saudi Arabia announced that it would increase output, driving WTI prices below $30/b, most operators took swift action, not only cutting active fracs by 37% but also announcing that they would begin the process of shutting in wells.

Delaware operators led the decline, cutting active fracs by 50% to 30. The biggest activity cuts were in Reeves County where active fracs fell from 17 before the March OPEC+ meeting down to just 3 active fracs two weeks later. Midland operators appear to be a little more cautious — or foolhardy — cutting active fracs by just 17% to 29. Operators active in Midland County actually increased activity, running 10 frac spreads at the end of March, 2 more than before prices collapsed.

Operator activity is down across the rest of the major tight oil basins, but some basins were much slower to react to the collapse in price. Operators in the Anadarko were even more reactive than those in the Delaware, running just 5 frac spreads at the end of March, down 69% from the beginning of the month. It became clear last year that operators were already losing interest in the Anadarko, shifting capital to other basins and cutting active fracs by nearly 70% over the course of 2019. The collapse in price merely accelerated the decline of an already-marginal tight oil play. Operators in the Bakken reacted aggressively as well, cutting active fracs by 59% in March to just 7. DJ operators were a little slower to react, holding active fracs steady in the wake of collapsing prices, but cut activity substantially the last week in March, cutting 31% to 11 fracs. The biggest surprise came from the Eagle Ford where, over the weeks following the March OPEC meeting, operators increased activity, adding 4 active fracs. However, in the last week of March, those operators also capitulated to market forces and cut activity by 29% to 17 active fracs.

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