Ta-da! America’s Shale Boom Makes a New Mexico

(Bloomberg Opinion) -- The contrast between the success of the U.S. oil and gas industry and unpopularity in the stock market grows ever starker.

The Energy Information Administration released revised monthly figures for U.S. oil production on Thursday. The headline is that production is up — way, way up. It reached 11.35 million barrels a day in August, fully 2.1 million barrels a day higher than a year before. That's almost like adding a whole new Mexico in the space of 12 months.

For all the pipeline problems threatening the Permian tight-oil basin, production in Texas and New Mexico keeps pumping higher. The two states, which also include the Eagle Ford basin in southern Texas, accounted for more than two thirds of the increase. That said, growth was fairly widespread, including North Dakota's Bakken basin, Colorado and — attracting a lot of buzz these days — Wyoming's Powder River Basin:

Forecasters at the Department of Energy have just begun raising their projections for U.S. oil production in 2018 again, having trimmed them over the summer amid brewing logistical problems in the Permian basin. They will have to raise them again. In October's short-term outlook, fourth-quarter production was projected to be 11.14 million barrels a day. But average production in July and August was already at that level. Moreover, production is now way ahead of what was predicted only 12 months ago:

Trouncing forecasts and forcing revisions has been a hallmark of the shale boom (just ask OPEC). Some prognosticators have done better than others, though. Rystad Energy, a consultancy based in Norway, said on Tuesday that EIA forecasts for production growth in August were too low, with its own prediction, at the top end of the range, coming in at it 11.3 million barrels a day — which is roughly what production turned out to be.

Rystad has been one of the more bullish voices in terms of U.S. production growth, and thus far it has been vindicated. Its own forecasts have output rising close to 18 million barrels a day by 2025, assuming $65 a barrel, or more than 20 million a day at $75. Importantly, Rystad expects production to rise above 15 million barrels a day by then, even at $55 a barrel, close to the planning decks of companies such as Anadarko Petroleum Corp. Beneath Rystad's headline number are expected increases in production of light, tight oil from five main regions:

Part of the story here is emerging evidence of E&P companies having learned to keep growing with less reliance on massive infusions of fresh capital. They still have some convincing to do on this front when it comes to investors, who are far more focused on bottom lines these days rather than setting new production records.

But another part of it is the continued entry of competitive players into the market. About 130 companies have been active in the Permian basin so far this year, according to Artem Abramov, who runs shale research at Rystad, up from 120 last year and less than 90 back in 2013 when oil still traded in triple digits. He has tracked 22 privately owned operators initiating horizontal drilling for the first time this year alone — a source of new spending outside of the traditional, listed sector. While consolidation is likely to pick up in the Permian basin, it clearly still has a long way to go.

Other figures released on Wednesday showed combined U.S. net imports of crude oil and petroleum products fell last week to 1.2 million barrels a day, the lowest on record and way down from a peak of more than 13 million barrels a day in 2006. Before you go out and buy your “energy dominance” bumper sticker, bear in mind the U.S. still imports about 5 million barrels a day of crude oil on a net basis.

Still, this is a dramatic shift in the past decade however you slice it. Few, if any, foresaw back then the possibility of the U.S. reaching net oil independence by 2020 (maybe even 2019). And still, the latest numbers suggest shale's capacity for disruption isn't done yet.

To contact the editor responsible for this story: Mark Gongloff at mgongloff1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities. He previously was editor of the Wall Street Journal's Heard on the Street column and wrote for the Financial Times' Lex column. He was also an investment banker.

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