Permian Basin, Gulf to lead U.S. to ’18 production record

U.S. daily crude oil production in 2018 may shatter a record established nearly a half-century ago, the Energy Information Administration has suggested.
The average production will be 9.9 million barrels per day next year, the federal agency revealed this week, up from 9.3 million barrels this year and more than the 9.6 million barrels produced in 1970, the landmark year.
Leading the U.S. production charge will be Permian Basin operations in western Texas and southeastern New Mexico and operations in the Gulf of Mexico.

The EIA said production in the Permian will increase to about 2.9 million barrels per day in 2018 as average production ramps up 515,000 barrels per day from June 2017 to the end of 2018. That 2.9 million barrels represents almost 30 percent of expected U.S. production next year.

Specifically, the EIA said lower costs of production have enabled Permian producers to make a profit even with oil prices lingering in the $50-a-barrel range and falling into the mid-$40 range in recent weeks. Baker Hughes’ rig count says there are 366 onshore rigs in the Permian alone; there are 915 onshore rigs in all in the lower 48 U.S. states.
Eight projects came online in the Gulf in 2016; another seven may come online in 2018. That will help Gulf production increase from 1.7 million barrels a day this year to 1.9 million barrels per day next year.
Lower costs made the difference

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Some West Texas producers are producing oil at a cost of about $39, it has been reported.
“In addition to responding to changes in (West Texas Intermediate) price, increases in right counts are related to cash flow,” the EIA said Wednesday. “In the Permian, operators have been able to maintain positive cash flow because of lower costs, higher productivity, and increased hedging activity by producers, many of whom have sold future production at prices higher than $50 per barrel.”
The Organization of Petroleum Exporting Countries launched a price war principally aimed at U.S. shale producers at Thanksgiving 2014. At that time, OPEC nations led by Saudi Arabia vowed to increase their drilling to drive down prices and force U.S. producers out of the global market, experts suggested. Instead, some U.S. producers have become more efficient at producing at lower prices. 
Eric Smith, associate director of the Tulane Energy Institute, told The Daily Advertiser earlier this month that independent U.S. producers have been finding it easier to borrow money of late.
“When they borrow, they drill and drill and drill,” he said.

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