Page 5 - NorthAmOil Week 44 2022

NorthAmOil COMMENTARY NorthAmOil

Permian gas takeaway
capacity shortages
have the potential to
constrain oil production
growth in the basin.

contributed to the company’s performance in One of these is thought to be a lack of take-
the Permian versus expectations. According to away capacity for associated gas output – a
Wirth’s comments on Chevron’s earnings call, by-product of drilling for oil in the Permian.
the company was among those to build up its This has been pointed out by the US Energy
DUC inventory at the start of the coronavi- Information Administration (EIA), which
rus (COVID-19) pandemic. It subsequently warned in late October that gas takeaway capac-
sent completion crews to start bringing its ity shortages could begin to limit the basin’s
DUCs online as the US reopened and demand crude production growth.
rebounded. The EIA highlighted this in conjunction with
“And you saw that through the back half of a decline in DUC inventories, saying that more
last year and certainly the first part of this year, wells were completed than drilled in the US
which may have misled a little bit in terms of between July 2020 and September 2022 – with
the rate of growth because this was this kind of the Permian accounting for the majority of
surge capacity,” Wirth said. DUCs. As of September, there were 4,333 DUCs
Having reduced its DUC inventory, Chevron in the US, representing the lowest number since
now anticipates its production growth to be at least December 2013, the agency said.
more in line with expectations. The reduction in DUCs comes as producers
Meanwhile, Pioneer – a pure-play Permian in the Permian continue to take a restrained
producer – reported that its oil output for the approach to new drilling. With DUC invento- The reduction
third quarter of 2022 fell by around 9% y/y to ries being depleted, new wells will need to be
354,000 barrels per day. This is despite the fact drilled in order to drive further output growth in DUCs comes
that quarterly production came in at the upper in the basin. However, it is currently uncertain as producers
end of Pioneer’s guidance of 345,000-360,000 whether drillers will be willing to change their
bpd. approach to a less restrained one in the future. in the Permian
However, Pioneer will now target a produc- Some constraints, such as those caused by
tivity boost by prioritising wells that would be current supply chain challenges, are expected to continue to take
expected to have higher returns. ease, potentially paving the way to more rapid
“Productivity came in a little less than we production growth beyond the short term. But a restrained
anticipated, and we wanted to rectify that,” said other problems – such as gas takeaway capacity approach to new
Pioneer’s president, Richard Dealy. “We’re really shortages, producer restraint and a push into
just reshuffling the portfolio and bringing for- less productive acreage as the most productive drilling.
ward higher-return wells and deferring some of wells are depleted – could continue to weigh on
the wells” that are not as productive, he added. the Permian.
Current trends will become better understood
Constraints as more producers disclose their third-quarter
There are certain other constraints that could results. And then results for upcoming quarters
be contributing to Permian performance issues, could offer clarity on whether the underper-
beyond those identified in comments being formance now being seen among some produc-
made by executives at companies with a major ers will be fleeting, or whether it will present an
presence in the basin. ongoing challenge.™

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