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Chart of the month

Chart of the month

Expectations for restrained US E&P spending portend a tighter market for water services and an even more challenging environment for produced water recycling.
This month’s chart was taken from a webinar held by investment bank Evercore ISI titled “Big Oil, E&P and Oil Service Outlook.” The chart shows capital expenditure (capex) on US exploration and production (E&P) for the 2011-2019 period, as well as estimated spending in 2020 and 2021. Several scenarios are presented for 2021 tied to oil price projections and producers’ strategies following the 2020 downturn.
Evercore research analyst and senior managing director James West posits that because the US shale market has been impaired in the intermediate term, overall domestic oil output will hover around 10 million bbl/d, much lower than the more than 12 million bbl/d the country pumped out in 2019. Under this scenario, West believes that only 400-450 rigs and 150-200 frac spreads will be needed to support production compared to around 800 rigs and more than 300 frac spreads seen during peak production.
In this scenario, the water management sector will undoubtedly be impacted. Fewer rigs and frac spreads will ultimately lead to a reduction in water volumes needed for new well completions and less produced water to be managed than had been anticipated prior to the COVID-19 pandemic. We have already witnessed the effects of fewer well completions on produced water recycling activity. Going forward, stakeholders will have to intensify their efforts to raise the industry’s appetite for recycling to pre-pandemic levels.

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