While Americans continue to believe that the U.S. will become energy independent, the county’s second largest shale oil field is seeing a drop in production due to a rising decline rate. The Eagle Ford Region in Texas experienced an increase in production as the oil price, and drilling activity increased since the beginning of 2016.
At its peak in March of 2015, the Eagle Ford was producing more than 1.7 million barrels of oil per day (mbd) but fell 30% to 1.2 mbd in November 2016 as the oil price declined. However, as the oil price recovered and drilling rig activity increased, oil production at the Eagle Ford rose to 1.4 mbd currently.
Unfortunately, oil production at the Eagle Ford is forecasted to decline in October. According to the EIA’s Drilling Productivity Report, the Eagle Ford will add 89,000 new barrels of oil per day (bd) in October but will lose 98,000 bd due to legacy declines:
The top graph in the chart above shows the monthly decline rate in the Eagle Ford Region. As oil production increased in the field, so did the decline rate. When the Eagle Ford peaked in oil production at the beginning of 2015, so did its legacy decline… a whopping 140,000 bd. Furthermore, as drilling rig activity decreased, the decline rate started to fall, shown as the line moving higher. Eagle Ford’s monthly decline dropped to 80,000 bd at the beginning of 2017. However, as drilling rig activity increased once again, from 36 at the end of 2016 to 91 in July, the decline rate started to increase as well.
Even though the Eagle Ford will add 89,000 bd of new production in October, it will lose 98,000 bd, for a net loss of 9,000 bd:
Now think about this for a minute. The drilling rig activity in the Eagle Ford surged from 36 at the end of 2016 to 91 by June, but production only increased 200,000 bd. Now, production is already falling as drilling rig activity moderately declines. Also, most of the companies producing shale oil in the Eagle Ford didn’t make any money as production increased 200,000 bd.
While the Eagle Ford is suffering a significant monthly decline rate, it pales in comparison to what is taking place in the Permian Region. The EIA forecasts that the Permian Region will experience a stunning 160,000 bd decline in October:
As we can see, the Permian Region will add 215,000 bd of new production in October, while its decline of 160,000 will add a net of 55,000 bd for the month. To increase oil production in the Permian, from 2.0 mbd in June 2016 to 2.6 mbd currently, the drilling rig count jumped from 145 to 373. Thus, the drilling rig count increased by a staggering 228 to add that 600,000 bd of production.
Unfortunately, the Permian will suffer the same peak and decline as did the Eagle Ford. While many energy analysts believe oil production will continue to increase in the Permian until 2022, I don’t belong to that mindset. Rather, I think oil production at the Permian may peak and decline a lot sooner, especially if the oil price head back into the $40 range.
The U.S. Shale Oil Industry is in serious trouble as the majority of companies have used a lot of debt to finance continued drilling. The massive $250+ billion in debt will never be repaid. When investors finally realize they are the SHALE OIL BAG HOLDERS, funds for future drilling will dry up and blow away. As funds dry up, so will production… like a rock.
The collapse of the U.S. Shale Energy Ponzi Scheme will destroy the myth of America’s energy independence and for all.
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