SOUTH TEXAS OIL & GAS
July 2016 Update
Crude oil prices remain less than half of the 2014 peaks, but they have recovered substantially from the lows below $30 at the beginning of the year. Both the West Texas Intermediate and Brent, the world’s major oil benchmarks, have since fluctuated around $50 per barrel. The consensus, as reflected in the futures markets, calls for a slight uptrend for the rest of year. The Crude Oil Volatility Index has also leveled off from the highs earlier this year, signaling less uncertainty about forces that may affect the world’s crude markets.
Eagle Ford Activity
As oil prices are stabilizing around $50 per barrel, drilling in the Eagle Ford play picks up once again, mostly in core areas with wellhead breakeven prices below $50 a barrel. Rystad Energy expects the number of rig counts to more than double by the end of 2016 compared to the low of 24 in June. The accumulated inventory of drilled but uncompleted (DUC) wells has also shrunk after operators began to ramp up completion of wells that had previously been put on hold due in part to high market uncertainty.
Shale Crude Production
Following increases in rig demand and decreases in DUC inventory, U.S. shale crude production is expected to reverse its year-long decline as early as this September. In the absence of global economic shocks, the oilfield service industry is expected to recover during the second half of the year after historic declines in revenues and massive layoffs since early 2015. Rystad Energy foresees an over 30 percent increase in capital investment for U.S. shale projects between 2017 and 2020. However, the Eagle Ford’s share of U.S. total shale oil production will continue to edge lower in the coming year from the current 25 percent while the Permian Basin’s share will continue to grow from the current 35 percent.
ABOUT SOUTH TEXAS OIL & GAS UPDATE
Each STOG update contains a synopsis of the latest developments in oil and gas activity in South Texas and its impact on the regional economy.
This project is made possible by the financial support of the College of Business at Texas A&M University-Corpus Christi. This is a presentation of the South Texas Economic Development Center.