May 01, 2020 (Baystreet.ca via COMTEX) -- U.S. shale oil producers have so far held up admirably, hanging on for dear life amidst the biggest oil demand collapse in history. American producers continued to pump at record highs in March, even after dozens of drillers laid out blueprints to limit production.
But with U.S. storage about to hit tank tops in a matter of weeks and the world deep in the throes of the biggest pandemic in modern history, the inevitable has begun to unfold: The arduous and costly process of well shut-ins.
Oil production in the country tumbled sharply to 12.2 million bpd in the third week of April, a good 900,000 bpd less than the record peak of 13.1 million bpd recorded just a month prior. That's a 7% production cut in the space of only a few weeks and the lowest level since July.
A lot more could be on the way.
More Production Cuts
Oklahoma-based Continental Resources /zigman2/quotes/200740136/composite CLR -7.02% , the company controlled by billionaire Harold Hamm, has ceased all its shale operations in North Dakota and shut in most wells in its Bakken oil field totaling roughly 200,000 bpd.
The company, though, has refused to sell its contracted oil to pipelines at negative prices by declaring force majeure.
Continental has defended its stance by pointing out that the coronavirus outbreak has "...brought about conditions under which force majeure applies" while adding that selling its oil at negative prices constitutes waste.
Continental made the risky gamble of betting that economic growth would lift prices and, therefore, left itself heavily exposed to low oil prices by failing to employ the industry's usual playbook of hedging future production with derivatives.
Continental is in good company, though.
Rystad Energy via CNBC has reported that six major U.S. shale producers will shut another 300,000 bpd of crude in May and June. That's ~100,000 bpd more than April cuts, thus bringing the country's total production cuts to 1.2 million bpd. The cuts will come from Continental Resources, ConocoPhillips /zigman2/quotes/207605056/composite COP -6.22% , Cimarex Energy /zigman2/quotes/205517948/composite XEC -3.35% , Enerplus Corporation /zigman2/quotes/200783569/composite ERF -4.43% , Parsley Energy /zigman2/quotes/200138201/composite PE -7.16% and PDC Energy /zigman2/quotes/202777853/composite PDCE -5.98% .
Continental Resources is set to slash 69,000 bpd in April and nearly 150,000 in May and June while ConocoPhillips will lower output by 125,000 bpd of oil equivalent, including 60,000 bpd of oil.
Rystad's head of shale research, Artem Abramov, has estimated that the biggest shale fields--Permian, Eagle Ford, and Bakken--will cut a further 900,000 bpd, 250,000 bpd, and 400,000 bpd, respectively, throughout 2Q20, with shut-ins accounting for a staggering 60% in the early stages.