Playbooks Supplements

Unconventional Yearbook 2018

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Page 4 of 107 | January 2018 | 3 INTRODUCTION | 2018 UNCONVENTIONAL YEARBOOK M arket participants appear prepared to play nice in 2018. OPEC production and the outlook for extending current production cuts is all but a done deal as of press time, higher oil prices provide much needed breathing room for many U.S. shale producers, and oilfield services are finally getting some relief from extreme margin pressures. Let's review 2017 themes before discussing each factor and the role each plays in our outlook. While OPEC-plus Russia have not made an offi- cial statement as of press time, recent commentary suggests an extension to production cuts is almost certain. The key question is "for how long?" Let's brush that aside for now. The key takeaway is that OPEC-plus Russia remains willing to accommo- date market conditions that support stability and range-bound prices. This is an important backdrop for U.S. shale. Higher oil prices in recent months opened doors for U.S. independents to lock in hedges despite the shape of the curve, thus reducing risk exposures should spot prices fall in 2018 and 2019. Higher oil prices coupled with an extension of OPEC-plus production cuts through at least mid-2018 support activity in the best areas of all major U.S. shales through the end of 2018. In 2017, watercooler chatter in oil and gas cir- cles fixated heavily on the Permian Basin. Whether it was field hands in West Texas or energy inves- tors in New York, oil and gas talk gravitated to the Permian. Topics discussed ranged from rising valuations per acre, lateral lengths and the impact from combining higher proppant loads with these bigger wells, last-mile challenges, type curves and remaining barrels of resource in place. 2018 will largely be a continuation of 2017 chatter … with a twist. Permian talk will still dominate the watercooler landscape. However, other plays like the Scoop/Stack, Eagle Ford and Bakken are already grabbing more attention and giving people things to talk about. The revelation that the Permian goose may not always produce golden eggs opened the door for other plays to re-enter the discussion. Hence, expect the Permian to share more of the stage with these plays in 2018. So, what does all this mean for U.S. shale pro- duction? Unconventional oil production is pro- jected to rise to 6.1 MMbbl/d by December 2018, up from 5.2 MMbbl/d in 2017. Rising Permian pro- duction is the primary growth driver of this 17% increase, further supported by a strong showing in the Eagle Ford. Other key shale contributors for oil include the Bakken, the Niobrara in the Rockies, and the Woodford Shale and related opportunities in the Midcontinent. These views assume OPEC- plus production cuts are extended until at least mid-2018 and cost pressures, especially for comple- tions, do not overwhelm expected spending plans. Looking at natural gas, unconventional produc- tion is projected to reach 69 Bcf per day by Decem- ber 2018, an increase of 9 Bcf/d, or 15%, versus 2017. This outlook is grounded on two key pillars: associated gas and the Marcellus Shale. Notably, associated gas is driven almost entirely on oil eco- nomics. In contrast, Marcellus gas is driven largely by gas demand east of the Rockies coupled with 2018 Looks Increasingly Positive for U.S. Oil and Gas OPEC-plus Russia remains willing to accommodate market conditions that support stability and range-bound prices. By Stephen G. Beck, Senior Director, Upstream, Stratas Advisors

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