LONG TERM NG & OIL PRODUCTION FORECAST MODEL UPDATES – Q3 2023

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The long-term natural gas & oil production forecast model is based on public producer forecast guidance and comparing the YOY (year-on-year) percent changes to actual production from a year ago.  The YOY percent changes are then adjusted for YOY private versus public fracking activity differentials.   After adjusting for private versus public fracking differentials, the YOY percent changes are added onto actualized state and DOE dry gas production data from a year ago in order to come up with dry gas production forecasts.  This is done for the Lower 48 and all the subregions.  The long-term production forecast model is updated quarterly to coincide with producer quarterly earnings.  The long-term production forecast model also incorporates the short-term production forecast model for the Haynesville Louisiana (NG only), Haynesville Texas (NG only), and West Texas (NG & oil) sub-regions from November-2023 until February-2024.  The short-term production forecast model incorporates well level data, decline rates, fracking crews, and TIL well level timing.

Lower 48 US NG

Producers continue to surprise even themselves with well outperformance.  The long-term NG production forecast for the Lower 48 US is revised higher for 2023 from the prior period forecast by 0.8% for 2023.  Lower 48 US NG production is now expected to be up 4.6% YOY in 2023.  Lower 48 NG production for 2024 is expected to be up 3.4%, up 0.5% from the prior period forecast.  January-2024 will likely experience production freeze-offs and this is the reason for a decline during this month.  December-2023 is also expected to see a small amount of production freeze-offs.  The bulk of the production increase is likely to occur during the March-2024 through April-2024 period and again in November 2024.  The large contango in the Henry Hub NG forward curve market is incentivizing producers to slightly increase activity in 2024.  Many producers have also said that they can increase production without increasing activity.  Producer efficiencies remain strong and are estimated to be up double-digits on a percentage basis.  The efficiency gains are expected to continue into 2024.  Maintenance in 2024 should be higher with new highs in production, leading to slight downward revisions in production during the heavy maintenance months of June-2024 and September-2024.        

The long-term oil production forecast for the US is revised higher from the prior period forecast by 2.0% for 2023.  US oil production is expected to be up 7.9% YOY in 2023.  US oil production is expected to be up 2.7% YOY in 2024, unchanged from the prior period forecast.  US oil production is experiencing even greater well outperformance than Lower 48 natural gas production especially in the Permian basin in West Texas and Permian New Mexico.  US oil production has been revised higher across all months until the end of December-2024.  Producers continue to do more with less through simufracing, trimulfracing, and more new wells with 3-mile laterals.

The Permian New Mexico sub-region has been the largest source of the error for the long-term production model.  The model had underestimated natural gas production by 1.0 Bcf/d.  There has been a very recent expansion of production activity in the sub-region.  Devon Energy has recently stated that they are devoting a lot more capital to the Permian New Mexico Delaware region, which the company called the “hottest basin in the world”.  2023 production is now expected to be higher YOY by 10%, up 6.8% from the prior period.  2024 production is now expected to be higher YOY by 14.8%, an upward revision of 4.1% from the prior period forecast.

Haynesville Louisiana production is expected to be up 2.0% YOY in 2024, revised down by 1.6% from the prior period.  Public producers in the sub-region have stated that they are in a flat maintenance mode level for the 1^st half of 2024 until they are sure that the LNG liquefaction comes online in the 2^nd half of 2024.  Once the producers are sure of the LNG liquefaction to come online, they will look to increase production and activity towards the end of 2024. 

Haynesville Texas production is expected to be up 10.8% YOY in 2024, revised higher by 7.2% from the prior period.  Comstock Resources is looking to aggressively increase activity in Western Haynesville, especially in the Bossier area due to extreme well outperformance.  The IP rates on the new wells in the Bossier have been anywhere from 35 mcf/d to 40 mcf/d.  Comstock is making long-term plans to produce 2 Bcf/d in the Bossier by 2028, more than the company’s current total production of 1.44 Bcf/d.

The West Texas NG production forecast has been revised downward by 0.7% for 2023.  2023 West Texas production is expected to be higher YOY by 10.0%.  There continues to be well outperformance and significantly more 3-mile lateral wells in the region.  The Whistler and Permian Highway pipeline expansions will allow for more production in the region.  Matterhorn Express Pipeline should allow for more production in the sub-region.  2024 production is expected to be higher YOY by 11%, revised higher by 0.4% from the prior period forecast. 

The West Texas oil production forecast is revised higher by 3.3% for 2023.  2023 West Texas oil production is expected to be higher YOY by 9.9%.  Well outperformance on the oil side of West Texas continues unabated.  Production is expected to ramp up throughout 2024.  2024 West Texas oil production is expected to be higher YOY by 4.8%, down by a slight 0.4% from the prior period forecast.  A higher production base in 2023 is the reason for the slight downward percentage decrease for 2024.  Oil production volumes in 2024 are still revised higher by ~2% from the prior period.

The South Texas NG production forecast for 2023 is revised higher by 1.0%.  South Texas NG production is expected to be higher YOY by 3.2% in 2023.2024 production in the sub-region is expected to be higher YOY by 4.5%, revised higher by 2.5% from the prior period forecast.  Producers like SilverBow are now shifting resources from oil wells to NG wells in late 2023 due to $3 plus Henry Hub pricing as South Texas has more gas to oil producer “switching” optionality.  The Dos Caminos intra-state pipeline expansion of 1 Bcf/d from Howard Energy & Eagle Ford Midstream should allow South Texas NG production to grow.  SilverBow has increased activity towards more NG well completions in anticipation of this pipeline expansion.

The South Texas oil production forecast is revised higher by 2.2% for 2023.  South Texas oil production is expected to be higher YOY by 7.1% in 2023.  2024 oil production is forecasted to be higher YOY by 3.8%, a downward revision of 1.3% from the prior period forecast.  Production has revised across all months in 2023 and a few months in 2024.  A higher production base in 2023 is the reason for the small downward percentage revision for 2023 production.  Oil production volumes for 2024 have still been revised upward by ~1% compared to the prior period forecast. 

The Northeast NG production forecast is revised higher by 0.2% for 2023.  Northeast NG production is expected to be higher YOY by 1.3% in 2023.  Strong efficiency gains and well outperformance continue uninterrupted.  The Northeast error in November was all from West Virginia, perhaps suggesting that Mountain Valley Pipeline is coming online much sooner than expected.
Production growth from MVP will likely equate to around 0.5 Bcf/d, which was about the size of the error in West Virginia.  January-2024 through February-2024 should see production freeze-offs.  2024 production is expected to be higher YOY by 1.9%, revised higher by 0.7% from the prior period forecast.

Lower 48 US NG production is expected to grow about 3.6 Bcf/d on average YOY in 2024 compared to 2023.  Q4-2023 to Q4-2024 exit-to-exit production is expected to be higher by 2.9 Bcf/d.  Much of the exit-to-exit increase will be dependent on the LNG liquefaction coming online in the 2^nd half of 2024.  December-2023 through February-2024 should experience some production freeze-offs.  Lower 48 NG production is expected to grow 3.4% YOY in 2024 with some of the increase coming in March-2024 through April-2024 and again in November-2024 when new LNG liquefaction demand is expected to come online.  There continues to be strong well outperformance across all basins and sub-regions, especially in the Permian.  The significantly higher number of wells using 3-mile laterals, the rise in the use of simultaneous fracing, trimulfracing, wider well spacing, shorter down times in both fracing and drilling, record pace in drilling wells, and even on-site sand storage are all leading to double-digit YOY percentage efficiency gains across the great majority of basins and sub-regions.  These efficiency gains are expected to carry over into 2024 according to producers.   

 
US oil production is also expected to increase at a significant pace.  2023 US oil production is expected to be higher YOY by 7.9%.  2024 US oil production is expected to be higher YOY by 2.7% and the pre-Covid record high production level of 13 million barrels per day has already been surpassed in 2023.  US oil production is equally benefitting from all the production efficiency gains that US natural gas is experiencing.  Much of the growth in US oil production is coming from West Texas, where oil production is expected to be higher YOY by 9.9% in 2023 and higher YOY by 4.8% in 2024.