US tight oil activity resilient, particularly in Permian Basin: Macquarie

Investing.com — The US tight oil sector has shown remarkable resilience in 2024, especially within the Permian Basin, despite industry challenges such as a declining rig count and a wave of mergers and acquisitions (M&A). 

Analysts at Macquarie in a note dated Monday, flag the sector’s ability to maintain robust activity levels, driven by increased efficiency, cost reductions, and strategic drilling, which could lead to an upside surprise in US oil supply.

Despite reductions in rig counts, the US tight oil sector has sustained its activity levels more robustly than expected. This is particularly evident in the Permian Basin, where drilling efficiency gains and cost management have offset the challenges posed by industry consolidation and lower rig activity.

As per analysts at Macquarie, these factors could drive unexpected growth in US oil supply, especially if crude prices remain stable in the current range​.

“This may suggest a greater degree of resilience than we believe is broadly appreciated and reflected in a Permian hz. rig count down ~16% from a Q2 ’23 cyclical peak,” the analysts said.

This stability is largely due to gains in drilling efficiency, particularly on the Midland side of the basin. These gains have been so substantial that drilling productivity is approaching the peak levels seen during the COVID-19 pandemic when the rig count was at a minimum.

Macquarie found that increased efficiency has allowed production to continue growing, even though the number of rigs in operation has decreased.  Publicly traded US producers reported strong sequential growth in the second quarter, with increased guidance for H2 2024 suggesting further upside potential. 

This is indicative of the broader industry trend where efficiency gains are helping to mitigate the impacts of reduced drilling activity.  Additionally, the Midland Basin’s productivity per rig is showing signs of improvement, potentially leading to increased oil output from the region​.

Permitting trends in the Permian Basin have remained robust through mid-2024, signaling continued confidence in the region’s production potential. This trend is evident among both public and private operators, despite the ongoing M&A wave that has reshaped the industry landscape. 

Macquarie analysts expect that these factors will contribute to sustained growth in US oil production, particularly if current efficiency trends continue​.