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2/29/24

Total US Oil Supply Analysis

Ryan Rice
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There’s been a lot of Fear, Uncertainty, and Doubt (FUD) about US ability to maintain oil - “peak oil”, “peak cheap oil”, as well as the tale as old as time regarding whether or not the market should continue investing in a market with such ‘finite resources’.

I see a lot of talk and hand waving around the topic, but never any data... So I thought it might be helpful to share with the community how a die-hard reservoir engineer views Total US Supply.

The facts of the matter are this:

  • The US is a POWER HOUSE. The innovations and efficiencies of scale observed over the past ~15 years of the shale boom have unlocked decades worth of reliable and sustainable energy, fueling the growing energy demands of our nation and allies to an extent previously unseen in the world.
  • The market is IN CHECK. At current rig rates (most recently ~620-630) - this should hold current production rates of 13 MMBOPD ~flat for years to come.
  • When applying a sensitivity with regards to Rig Rates (as well as Productivity), we see very few scenarios in which the US fails to supply 10 MMBOPD+ through 2030.
  • On a 5-year run-rate to 2030, we see ~638 rigs holding Total US Oil Supply perfectly ~flat. If commodity prices fall, and rigs decline to ~500-600, we would only anticipate a modest decline to 11-12 MMBOPD. If commodity prices rise, and rigs return to ~700-800 levels, then production will respond with a sustainable growth towards upwards of ~15+ MMBOPD.
  • We would need to see well productivities increase from historical averages +25%, as well as 800+ Rigs in order to have history repeat itself with over-supply conditions approaching 16-17+ MMBOPD
  • While this is a long putt, it is achievable, especially in the face of emerging Enhanced Oil and Gas Recovery (EOR/EGR) techniques

If this post gets at least 200+ Likes, I’ll share an even more contentious update around US Gas Supply, which has the potential to be the LARGEST Green Initiative on the planet with respect to decarbonizing foreign coal.

Assumptions:

  • This is a simplified, top-down, synthetic model of total US production, encompassing basins ranging from the booming Permian to the less active and more mature Eagle Ford, Williston, and Rockies. As such, we assume an overall P50 well productivity of 30YR EURs ~40 MBO/1k'.
  • Our Model showcases this, but to reiterate: we also assume an overall P50 of 20.3 spud to TD, 9,400’ effective lateral length, and average Spud to Sales of ~7 months
  • Sensitivity Spider plot showcases +/-25% productivity assumptions (30 and 50 MBO/1k’, respectively)
  • What matters MOST is Total HZ Feet drilled per month, or annualized. It is more effective to model supply through this lens, as it allows separate sensitivity around drill times & timing. So, while we model ~638 rigs holding production perfectly flat, you can transform your own opinion with respect to adjusting timing variables knowing that end of day - 105-110MM HZ Feet is the golden ticket.
  • We stop modeling additional activity/new drills post 12/2030, hence the decline we can observe towards the tail end of the charts below

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