US Oil Output Slide Looms as Shale Firms Hit Productivity Wall

Producers' coping strategies with the worst cash crunch in years could be also hurting productivity of new wells.

To save money, many have started drilling shorter and cheaper vertical wells. They have also cut back in some cases on the size of multi-million dollar hydraulic fracturing jobs for long horizontal wells. Both factors can hurt the average amount of oil being added by new wells.

Analysts say it is hard to predict how much U.S. output will fall and whether it will undershoot official forecasts because lower production could lift prices and that in turn might prompt producers to redeploy idle rigs to pump more.

But for now, most companies are budgeting less next year for new drilling work and the U.S. rig count has tumbled to 595, according to Baker Hughes.

Analysts at Bernstein Research have said that productivity gains so far in this downturn have come from improved efficiency rather than fundamental leaps in technology.

Yet such advances, which are hard to predict, would be necessary to boost productivity again because analysts say shale firms seem to have fully exploited techniques such as drilling multiple wells from one location, drilling longer horizontally, and more intensive fracturing along a well bore.

Initial production rates for new wells in major oil basins also appear to be slowing, Bernstein analysts said, citing their analysis of peak rates dating back to 2009.

"Shale efficiencies will be unable to overcome rig count collapse, leading to a roll in production which is bullish for oil price," they said.

(Reporting By Anna Driver and Terry Wade; Editing by Tomasz Janowski)


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