US crude oil production poised for biggest jump since 1970

Nov 27, 2009 01:00 AM

United States crude oil production for 2009 is on target to have its biggest one-year jump since 1970, according to an analysis of industry data.
With US oil production averaging 5.268 mm bpd through October, the gain in US output will be the most since the country produced 9.637-mm bpd in 1970, which turned out to be the peak year of US crude output, according to the analysis of data published by the US Energy Information Administration (EIA). If that 5.268 mm bpd figure holds through December, this year would show a 6.4 % boost from the 4.95 mm bpd average of 2008 and rank as the best US oil production year since 2004, when output averaged 5.419 mm bpd.

For comparison, in the 40 years since US oil production peaked annual output has jumped only eight times. Seven of those increases were minimal; only in 1978 was there a jump of significant magnitude, an increase of 5.6 %, to 8.7 mm bpd.
Last year's hurricane curtailments distorted the production numbers somewhat for the 2008 comparison, given that 183,000 bpd of Gulf of Mexico output was still offline at the end of that year. However, 2009 is still expected to post increases of 3 % and 4 % from the relatively storm-free years of 2006 and 2007, respectively.

Projections from the US Minerals Management Service (MMS) indicate that the primary driver for this year's US oil production resurgence is actually just getting started. That driver is the Gulf of Mexico, where operators have begun launching a group of new fields, fulfilling what has been a decade-long focus on unlocking the promise of deepwater exploration there. The report concluded that with the jump in the Gulf of Mexico, combined with the emergence of two other new oil-production trends, it appears the US has a chance of at least maintaining oil output in the range of 5 mm to 6 mm bpd for some years to come.
"We see it above five mm bpd for the next 10 years or so," Peter Jackson, senior director for IHS CERA, was quoted as saying. "There is still a tremendous amount of exploration potential in the US and that plateau could be sustained."

The Gulf posted its biggest oil production year in 2002 with 1.556 mm bpd, but only 61 % of that total came from deepwater. In contrast, this year the MMS projects oil output of 1.213 mm bpd with 76 % from deepwater as the Gulf ramps toward an expected new oil production record of 1.635 mm bpd by 2011.
Besides growth in the Gulf, those other trends involve further development of the Bakken Shale oil play in North Dakota and success by a group of operators now training their onshore exploration sights toward new oil targets at the expense of natural gas.

The development of the Bakken into a robust, new oil province is well under way, according to data from EIA. Bakken oil output has already elevated North Dakota into fifth place among US states for oil production with average daily output of 202,000 bpd at the end of 2008. But that number already appears to be old, even though is was 50 % more than 2007 figures. For example, in June of this year, production in North Dakota had climbed to 215,000 bpd.
As for companies shifting their strategies, that group includes large Houston independent and Bakken pioneer EOG Resources, which has set a goal of shifting from a 70 % gas production share to a 50:50 oil and gas mix by 2011 with a comprehensive review of additional potential North American shale oil targets.

This rise in output has helped the US reduce its net imports -- defined as imports less exports, both crude and petroleum products -- by a substantial amount. While there are many factors that go into the United States' net import figure, the decline has been striking, according to EIA data.
For the final three months of 2008, net imports -- reported weekly by EIA -- were never less than 10.5 mm bpd, and were as high as 12.68 mm bpd. This year, the EIA is reporting that net imports in the first week of October were 10.1 mm bpd, have not been higher since, and have been as low as 8.84 mm bpd. And while the drop in US consumption can be seen as accounting for much of that decline, the US also has put more than 140 mm barrels of crude oil and products into inventory since the beginning of October 2008, something made possible in part by the rise in crude oil output.

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