New US Shale Play Emerges As Rig Count Rises For 21st Week In A Row

Crude production from the Lower 48 dropped marginally last week, despite rising rig counts…

And in the last week oil rig counts rose once again (21st week in a row) up 8 to 741 – highest since April 2015 – notably given the lagged response to prices, we might expect the rig count rises to slow here.

But, while the Permian has dominated the conversation in recent months, OilPrice.com’s Irinia Slav explains the next big US shale play…

Media coverage of the U.S. shale oil and gas industry makes it sound like the Permian is the only place where things are happening. Everybody is buying acreage in the Permian, selling acreage in other shale plays, and production costs are falling the fastest in that same Permian.

True as this may be, this shale play is by no means the only one where production is growing. In fact, oil and gas output across the shale patch has been growing, as the Energy Information Administration’s latest drilling productivity report shows. And that’s not all because there is a new actor on stage: Powder River Basin in Wyoming.

Now, in its May drilling productivity report the EIA confirmed what media have been saying: the Permian is the hottest spot in the shale patch, with a 71,000-bpd increase in output in April. This hottest spot was followed by the Eagle Ford, which some see as a declining play but if we are to believe EIA data, it is far from a decline: drillers there added 36,000 bpd to total output in April.

Bakken, which the EIA last year said will become the largest source of tight oil and gas in the U.S., added 6,000 bpd to daily production, with Niobrara added 7,000 bpd. Even the Marcellus and Utica plays, which are more famous for their gas, are yielding more crude, with both adding 1,000 bpd to overall output in April.

All in all, despite much skepticism and open doubts in the actual performance of U.S. shale, the fact is that shale drillers are indeed boosting production. There is a school of thought that says the shale bubble will burst at some point, when producers stop being able to service the debts they are taking out to increase production but let’s bear in mind that they are not just investing in more production. Shale drillers are also investing in efficiency improvements that lower their production costs.

Now for the new player in the field, which is in fact not new at all. Bloomberg’s Alex Nussbaum calls Wyoming’s (and Montana’s) Powder River Basin “a home to cattle ranches and coal mines.” Yet until the 2014 price crash, the PRB was one of the shale oil basins that were growing at the fastest rate. Then prices tanked and drillers started getting out.

Now drillers are returning to the PBR. Crude oil production in the basin jumped to 1,000 bpd of oil equivalent over the last 12 months from less than 800 barrels and a major drilling expansion is on the way.

EOG, Chesapeake, and Devon Energy are planning to spend a combined US$600 million in that part of Wyoming, and pipeline operators are eager to expand in that direction. The reason: land prices are much lower than those in the Permian, for the moment. It’s all about early birds catching worms, and the earlier a bird is the better because prices in Powder River are already rising. A year ago, Nussbaum says, drilling permits went for less than US$1,000 per acre. Now, an acre costs US$17,000.

It may be that the Powder River Basin will repeat the success of the Permian, not least because its geology is similar, which of course means low production prices. Just this week, a local midstream operator, Evolution Midstream, purchased a gas gathering system from peer Lucid Energy Group, saying the asset will make the foundation for regional expansion now that interest in the Powder River Basin is growing so fast.