LONDON (ICIS)--US total liquids production could drop by at least 500,000-600,000 bbl/d year on year in 2016 and by 500,000 bbl/d in 2017 on average, Natixis Economic Research said in a note on Wednesday.
This would be the scenario "if oil prices failed to recover over $40/bbl prompt - or $50/bbl at the back-end of 2017- anytime soon," the analysts said.
The analysts divided total US liquids production into two main categories: crude oil and natural gas liquids (NGL). In 2015, crude oil production increased by 764,940 bbl/d year on year and NGL production grew by 342,841 bbl/d year on year on average.
Cuts in capital expenditure in 2016 for a sample of 73 US oil companies is close to 46%, the firm said.
Shale oil production from the seven key basins averaged 5.36m bbl/d in 2015, an increase of 569,900 bbl/d year on year. "Shale oil output from the 7 key basins will decline by at least 0.85-1.2mn b/d between December 2015-December 2016 exit levels. More aggressive decline will be driven by lower oil prices," Natixis analysts said in the note.
Average wellhead break-evens for a sample of 33 profitable basins is close to $38/bbl. "Risk management for 2016 indicates US oil companies are hedged slightly below their 2015 average, with limited production hedging in 2017," the analysts said.
US crude oil exports should decline on the back of lower domestic production, as per the analysis.
"Given our analysis on the decline in rig count, CAPEX cuts, wellhead break-evens, the volume of production hedged and the quality of those hedges, we believe the US upstream market will face a challenging 12-18 months, especially if oil prices remain low," Natixis said.
Natixis is the international corporate, investment management and financial services arm of Groupe BPCE of France.