Kemp: Factors That Will Drive US Oil Production In 2015

That would be a marked slowdown from the 1.28 million bpd increase between December 2013 and December 2014 or the 790,000 bpd increase between December 2012 and December 2013.

At a rough approximation, most forecasters expect U.S. production to be flat in 2015 - after two years of 1 million bpd growth, during which time North American shale producers were the marginal suppliers to the world oil market.

And every forecast for U.S. oil production contains an implicit forecast for what will happen to oil prices over the course of the year.

EIA thinks the number of active drilling rigs in the United States will fall by 24 percent between January and October 2015 before starting to recover in November.

That forecast is based on its assumption WTI prices will increase to an average of $53 per barrel by June and $67 in December.

WTI prices have so far averaged just under $48 so far in 2015, so EIA's forecasts for rig counts and production are conditioned on a $20 price increase by the end of the year.


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Philippe  |  January 28, 2015
Shale production requires fracking, fracking means that the geological formation must be cracked to liberate the oil or gas locked in the geological formation. The Initial Production or IP is the maximum production when the oil or gas is liberated at the high point of the released pressure. As the IP continues to take place the pressure diminishes and the propan keeps the cracks open but induces pressure drop due to the flow constraint by smaller rocks opening or cracks. This resistance reduces the production rates by 50% within the first 12 to 18 months. Past this IP production we enter the Estimated Ultimate Recovery (EUR) where the production rate is 20% of the original production. Drilling is the way in a Shale Fracking situation necessary to keep production at an elevated and profitable level. The EUR production cost would go up because of the cost of getting to market less production. It becomes a cost per barrel at market not at the well head. The production of US shale crude oil or gas will level off because of less drilling. The return on investment represented by drilling is not supported by the market prices. It may take 12 month, but rest assured US production will go down, unless the crude oil or natural gas market prices allow drilling again.
Jerry Lummus  |  January 27, 2015
Good reminder of the limitations of the rig count information. As you correctly point out however, the availability and depth (back to the 1940s) of the data base make it useful. One use is to see it as a proxy for what we unfortunately dont have - a similarly long, detailed and timely series on actual E&P expenditures, the main driver for the entire upstream industry, including future production. In a perfect information world where we would have good data on E&P outlays as well as on all the variables you list above, forecasting the impact of changes in oil prices would be far simpler. Until we get there, simple time series analysis of rig count data is one the best tools we have. Assuming HAL and BHI do merge, we need for the new entity to continue the data as BHI has done all these years.