Kemp: Factors That Will Drive US Oil Production In 2015

Focusing on the rig count introduces a data availability bias into production forecasts. But since it is almost the only comprehensive and timely information on drilling activity, forecasters do not have much choice. Rig count data must be interpreted carefully but it would be unwise to ignore it completely.

On balance, the safest conclusion is that U.S. shale producers will be able to offset some of the fall in oil prices by drilling more efficiently, and that the amount of new oil produced per rig employed can be increased.

But the efficiency improvements are unlikely to fully offset the decline in prices and rig counts, at least in the short term.

For that reason, it seems reasonable to assume U.S. shale production will be fairly flat in 2015, give or take a couple of hundred thousand barrels per day, after several years of exceptional growth.

(Editing by David Evans)


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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.