US shale oil production drops – but may prove short-lived

Chesapeake Energy Corp. Eagle Ford Crystal City (slider)
Shale oil production flow has dropped by 1% in the US this month so far, and the decline is just beginning. 

By Lynn Doan

(Bloomberg) — The U.S. lost about 1 percent of the oil production flowing from its shale formations this month, and the decline is just starting.

Output from the prolific tight-rock formations such as North Dakota’s Bakken and Texas’s Eagle Ford shale will slide 54,227 barrels a day this month, based on Energy Information Administration estimates. It’ll fall another 86,000 barrels in June to a five-month low of 5.56 million, the agency said Monday.

Last year’s plunge in crude prices led to the steepest and most prolonged retreat from U.S. oil fields on record. Drillers have idled more than half the country’s rigs and eliminated tens of thousands of jobs. Some of the country’s largest shale producers including ConocoPhillips and EOG Resources Inc. have said spending cuts were deep enough to curb domestic output.

“Even if 10 rigs come back today, we’re still going to see production decline,’ Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. said by phone from London on May 6. ‘‘We’ve reached this inflection point where there aren’t enough rigs drilling to offset legacy declines.”

West Texas Intermediate crude for June delivery fell 14 cents on Monday to settle at $59.25 a barrel on the New York Mercantile Exchange. Futures have rallied 36 percent since March on speculation that oil production is poised to fall.

Standard Chartered Plc forecast on May 4 that U.S. shale oil output will drop about 78,000 barrels a day in June from a month earlier, with declines totaling 137,000 barrels a day in the second quarter.

The drop in shale output may prove short-lived. The rebound in prices has drillers including Pioneer Natural Resources Co. preparing to put rigs back to work in U.S. fields. The Irving, Texas-based company said last week that it may deploy more rigs as soon as July.

“Prices are at a level where you’re inviting the deployment of rigs again, so the view of supply significantly falling may be misguided,” Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London, said by phone on May 6.

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