US shale oil production forecast to reach 9mn b/d by 2025

McKinsey Energy Insights (MEI) has released its North American Shale Oil Outlook. Under its Price Recovery scenario, which assumes WTI prices will hit $60–$70/b from 2019 onwards, the market analyst expects shale drilling and completions to grow at 20%/y and production to increase at 12%/y through to 2021. US shale oil production is estimated to reach 9mn b/d by 2025, but this could vary by 5.4mn b/d depending on oil price scenarios. 

Although North American shale oil margins have struggled to bounce back after the market plummeted in 2014, drilling activity since 2Q2016 has more than doubled. The report highlights that recent key operational improvements – such as increased drilling efficiency, better completion designs, and high-grading – will help margins widen and enable drilling to become profitable beyond the most resource-rich basins.

MEI found that operators have reduced drilling time by an average of five days while improving initial production (IP) by 33% from 2014 to 2016. Wells with better completion designs – like high-proppant-volume wells – have experienced 35% higher IP than average, but these gains are subject to additional costs due to water and sand sourcing. MEI forecasts that the number of wells completed will grow at 21% annually until 2021, requiring total capex spend to increase 25%/y to reach 2014 spending levels.

The market analyst also expects the Permian to be the primary shale oil basin to watch over the next 10 years due to its resource quality and size, proximity to markets, and existing infrastructure. However, even if well costs increased by 30%, large parts of the Permian would still remain economic under MEI’s Price Recovery scenario. From 2016 to 2021, MEI projects that 47% of growth in rig activity will come from the region with remaining activity similarly spread across the other major basins.