US to See Biggest Frac Fall Ever: Rystad

The US is likely to see the largest monthly drop in fracking activity ever recorded, according to analysis by Norwegian consultancy Rystad Energy. But because of the time lags involved, there will even so be too much coming to market, it said in an April 22 report.

Rystad forecasts less than 300 started frac jobs in April, of which almost two thirds will be in the Permian and the other third split equally between Eagle Ford and Bakken.

"This translates into a 60% decline in started frac operations between the peak level seen in January to February 2020 and April 2020, as the majority of public and private operators implement widespread frac holidays," it said, adding that natural production decline, as opposed to shut-ins of producing wells, will be the producers' preferred option.

It said that if no new horizontal wells were put on production from April, total light oil production will decline by 1mn barrels/day by May, 2mn b/d by July and by 3mn b/d by October to November, with the Permian Basin accounting for more than half of the nationwide base decline.

But impressive though this sounds, "the steep decline is actually too late to save prices; despite the oversupply issue, standard operation patterns prevent operators from simply turning the faucet off. These days Permian wells require about two months from the moment frack operations start until they produce first oil, and require about three months before they reach peak output.

“On the demand and storage side, the market is already moving through its toughest challenge yet, and the WTI front-month sell-off emphasised how broken the physical market might be already. We are therefore concerned that significant production shut-ins will be required in the next few weeks to bring the market into the balance in a brutal manner," Rystad said.

Rystad's analysis is based on official data backed up by satellite data to "systematically monitor more than 40,000 permitted and drilled locations across the US, continuously identifying the presence of any activity taking place."

Depending on their hedging strategies, some producers will come off better than others. A survey of a representative sample of producers led Rystad to conclude in a report mid-March that they had hedged almost 50% of their guided 2020 output at an average price floor of $56/b, although since then, the issue of storage has become critical.