US oil producers have been expected for some time to have to shut down oil production as a result of the Covid-19 pandemic, but they were initially slow to move. Now that profitability and storage limitations have started to hurt, the curtailment wave has accelerated. A Rystad Energy analysis shows that gross US cuts could reach at least 2 million barrels per day (bpd) in June, including liquids.

Net oil production cuts could reach 835,000 bpd in May and 877,000 bpd in June, compared to around 256,000 bpd in April, according to Rystad Energy’s interpretation of early communication from 31 US oil producers.

This represents gross curtailments (including royalties to the government) of over 1 million bpd in both May and June, and at least 1.5 million bpd if total gross liquids output is considered. Adding the potential uncommunicated contribution from private and smaller operators, who are also likely to struggle, total Covid-19-related gross liquids output curtailments could easily hit at least 2 million bpd in June.

Stay up to date and get immediate email notification when we publish COVID-19 related reports and press releases. Sign up here

The figures do not represent the total production curtailment that the US is experiencing and will experience. Actual production cuts are probably larger and occur not only as a result of shut-ins, but also due to a natural decline from existing wells when new wells and drilling decline.

The cuts will be delivered through a combination of measures, including the deferral of wells put on production (POP), moderating output from producing wells, and temporarily shutting in lower-margin wells. Some producers expect that currently projected June cuts may eventually increase depending on the prevailing oil price, but curtailed oil volumes should mostly return to pre-cut levels in the third quarter of 2020.

“Most operators specified that it will not take long before production can be fully restored from affected wells, as they aim to preserve reservoir and well integrity when moderating output or their wells. In the end, the rather difficult situation at present is promising an accelerated transition for E&P companies. The US shale sector is expected to become healthier, with strong companies becoming even stronger,“ says Rystad Energy’s Vice President North American Shale and Upstream Veronika Akulinitseva.