US rig count by play

'Shale' is the one word that explains almost everything that's happened in the global oil market in the past decade.

It was a revolution in oil production that made the US an energy superpower once again. The ability to horizontally drill and frac oil made for massive finds in the US. That was followed by a Wall Street love affair with investing in never-ending production rises and promises of profitability at $20 oil.

A reckoning was coming before the pandemic but that accelerated it. In the aftermath, companies have been rapidly drawing down drilled-but-uncompleted wells, or DUCs.

That inventory is quickly reaching depletion and it's time for drillers to start drilling again. The problem is, that many of the best milkshakes have already been sucked dry.


That's becoming increasingly clear in the Bakken formation, where production is falling.

Holding up the entire industry is the Permian basin in Texas, which remains prolific. However it's an open question of whether it can pick up the slack from declines elsewhere, or if that's what drillers want to do. Right now, there's a big push for discipline and the return of capital.

Today, the EIA is out with its latest productivity report and it shows modest production increases throughout the US for February, led by the Permian up 80k bpd.They see overall US production up 105k bpd next month.

What's more concerning though is that the EIA is seeing declining productivity for new wells

  • Permian 1195 vs 1210 bpd a month ago
  • Bakken 2000 bpd vs 2106 a month ago
  • Eagle Ford 2235 vs 2304 bpd a month ago

Now, many things go into that so it could be misleading but it's undeniable that companies with options are high-grading.

The ultra-bull case for the US is that well productivity declines substantially in the US. America has been the swing producer of oil for the past decade and has always been there to fill in the gaps from conventional oil. Even with oil prices at 7-year highs, the investment in conventional oil is nowhere near close enough to make up for the 4-6% natural declines in global fields.

What if shale can't make up the decline either?

WTI monthly