Over the last week or so, we have been drilling into some data from Texas and North Dakota (the two major tight oil areas in the U.S. that account for the lion’s share of new production growth) to see what the impact of the current price environment has been on a comparative year to date basis. Interest in this data has been motivated by what appear to be stubborn production numbers reported in the EIA weekly reports.

Accordingly, rather than look solely to production numbers, the thought was that some of the statistics worthy of a look-see are “completions” and “permits”. Completions data for a month are the number of wells ready to be brought into production. Permits issued are for new wells to be drilled. The benefit to these stats are that they provide another window into what might be seen in future months for production and drilling activity, especially when looked at in the context of reduced rig counts.

For the 5-months YTD, the data break down as follows:

The conclusion that can be drawn from this data(aside from a frightening drop in activity)  is that notwithstanding the stubborn production numbers, it is inevitable that the reduced permitting and completions activity combined with lower rig counts and high decline rates (not discussed here) will lead to rapid retreat of production levels.

Some additional reference points:

• The North Dakota Ministry of Mineral Resources estimates that completions need to average 110 to 120 a month to maintain production at the current 1.1 to 1.2 million bopd. While that data in Texas isn’t presented in the same way, it is safe to assume that the same theory holds.
• The end of May rig count for Texas and North Dakota was 368 and 83 respectively, significantly below the average presented in the table. Even were a price signal to push companies back into drilling growth mode, it would take quite a while to get spooled back up to 2014 levels.

Prices as at June 26, 2015 (June 19, 2015)

• WTI Crude: $59.61 ($59.51)
• Nymex Gas: $2.754 ($2.812)
• US/Canadian Dollar: $0.8118 ($ 0.8152)

Highlights

• The price of oil rallied in the week before slipping toward the end on US dollar strength, Greece uncertainty and supply concerns
  • Storage declined more than expected
  • Production increased marginally during the week. Traders continue to await the much anticipated production drop-off
  • The rig count continues to fall
• Natural gas was relatively flat the week on the basis of increasing demand.
• As of June 19, 2015, US natural  gas in storage was 2508 billion cubic feet (Bcf), which is 1% above the 5-year average and about 38% higher than last year’s level, following an implied net injection of 75 Bcf during the report week. Overall U.S. gas consumption increased by 2.4% this week, with an increase in power-sector consumption offsetting a decline in the residential/commercial sector.
• As at June 19, 2015, US Crude oil supplies were at 463.0 million barrels, a decrease of 4.9 million barrels from the previous week and  74.9 million barrels ahead of last year.
• The number of days oil supply in storage was 28.1, ahead of last year’s 24.8.
• Production increased to 9.604 million barrels per day from 9.589, with a large decrease in Alaska offsetting a gain in the lower 48
• Oil rig count at June 19 was down to 628 from 631 the week prior, the lowest since August 2010
• Natural gas rigs drilling in the United States rose this past week to 228 from 223.
• As of June 15, the Canadian rig count was up to 129 (17% utilization), 75 Alberta (14%), 14 BC (17%), 40 Saskatchewan (31%), 0 Manitoba (0%)). Utilization for the same week last year was 27%.

Drillbits

• The new Alberta NDP government said they would raise the carbon levy in the province’s Carbon Tax (or Specified Gas Emitter Regulation – ug) plan from $15 a tonne to $20 a tonne to $30 a tonne by 2017. In addition, intensity targets will be raised from 12% to 20%.
• In addition, the new Alberta NDP government made a number of appointments of significane this past week
  • Dave Mowat, the CEO of Alberta Treasury Branches has been appointed to lead and recruit members to the royalty review panel. This is in our view an excellent choice given Mr. Mowat’s knowledge of the industry and role as leader of a significant lender to not only the E&P space, but the critical energy services industry as well.
  • The new Climate Change Advisory Panel will be chaired by Andrew Leach, whose day job is as an energy and environmental economist and Associate Professor at the Alberta School of Business at the University of Alberta. This is an excellent choice given Mr. Leach’s knowledge of the space
  • Finally, former Bank of Canada Givernor and current Senior Advisor to Bennett Jones LLPDavid Dodge has been retianed to provide advice on infrastructure funding and planning for the province.
• Tourmaline announced a revised capex plan for the balance of 2015 that includes an increase in spending from $1.2 billion to $1.35 billion