Oil production from U.S. shale plays is likely to hit a floor in 2021 with no further declines expected in a $40 to $45/bbl West Texas Intermediate (WTI) price environment, according to new analysis by Rystad Energy.

Output is expected to fall by an estimated 3.1% year/year to 7.5 million b/d in 2020 from 7.7 million b/d in 2019, the Oslo-based consultancy said Tuesday, with a further decline of 2-3% forecasted for 2021. 

“However, most of this decline already occurred throughout 2020,” researchers said.

Onshore operators’ drilling and completions (D&C) capital expenditure (capex), meanwhile, is expected to plunge by more than half to $45.2 billion in 2020, far outpacing the production decline, the Oslo-based consultancy said.

“Operators have now shifted focus towards preserving as much output as possible while implementing capital efficiency measures,” researchers said.

As a result, Rystad expects D&C capex to decline by 7-9% y/y in 2021, versus the 3.1% expected drop in production.

Rystad analysts examined the third-quarter guidance of a peer group of 23 U.S. oil-focused publicly traded operators that account for about 41% of current U.S. shale oil production.

The group’s 2021 onshore oil output is seen dropping by just 1.9%, while its D&C capex is expected to drop by 12.9%, the Rystad team said.

Operators focused on the Permian Basin are projected to see the largest spending drop in the group at $1.6 billion, or 16% below expected D&C spend for 2019, researchers said.

“Despite the fact that operators in the Permian Basin are leading capex reduction efforts, the group has guided an almost 2% increase in oil output in 2021 compared to 2020,” researchers said. “The factors driving this drastic cost reduction per barrel include service cost reductions and the price deflation of completion components.”

Rystad senior analyst Alisa Lukash said, “Amid a second wave of Covid-19 in North America and Europe, and uncertainty related to potential new regulation the industry may face once a new U.S. administration settles in, operators remain largely disciplined.”

President-elect Joseph R. Biden Jr. has indicated he will restrict new oil and gas drilling on federal property.

Lukash added that Lower 48 operators “aim to increase cost efficiencies and spend only the minimum amount needed to prevent next year’s output from declining too much.”

Rystad’s forecast coincides with the U.S. Energy Information Administration’s latest Drilling Productivity Report, which foresees U.S. oil output from seven key onshore areas dropping by 140,000 b/d in December versus November to about 7.5 million b/d.

EIA sees natural gas production from the plays falling by 679 MMcf/d to 81.5 Bcf/d.

EIA also said that petroleum demand last week was down 3% week/week and 8% versus the comparable week last year, as the pandemic continues to put downward pressure on demand.