U.S. tight oil production may fall 600,000 barrels per day by June 2015 based on reasonable projections of current rig counts.
I compared the decrease in rig counts that began in late 2014 to the rig count decrease in 2008 and 2009 following the Financial Crisis. I projected current total rig counts according to three scenarios out to June 5, 2015 shown in the chart below. I then applied those decline rates to rig counts and production in the 4 major tight oil plays: the Bakken, D-J Niobrara, Eagle Ford and Permian basin.
Comparison of rig count decrease in 2008-2009 and 2014-2015. Source: Baker Hughes
In 2008-2009, the U.S. rig count dropped from 2,031 to 876 over a period of 283 days. As of February 13, 2015, the rig count has fallen from 1,931 to 1,358 over a period of 151 days. The current rate of decrease is greater than in 2008-2009. I used the 2008-2009 rig count trend as a general guide for rate of change and duration recognizing that there are differences between the two events. Other than the rate of decrease, the most notable difference is that in 2008-2009, there was more vertical drilling than in 2014-2015 and that rig efficiency was lower in 2008-2009 as a result. Related: Why Oil Prices Must Go Up
I believe that I have accommodated that difference by using EIA production per rig and legacy production change data from the February 2015 Drilling Productivity Report. I used that data in conjunction with projected rig count decline rates to forecast future production for each play. The results are summarized in the following table.
Summary table showing forecasted production and rig counts for the base, high and low cases for key tight oil plays. Source: Labyrinth Consulting Services, Inc. Related: Will Texas Survive The Downturn?
Production for these four tight oil plays alone may fall by approximately 582,000 barrels of oil per day by early June 2015 in the base case. A decrease of about 536,000 barrels per day is estimated for the high case and a decrease of about 665,000 for the low case. Production decline will also occur outside of these plays so the total drop in U.S. production will be greater.
This is significant because the EIA world liquids production surplus for January 2015 is 0.97 million barrels per day and the estimate for June 2015 is 0.63 million barrels per day (EIA February STEO). In other words, the estimated decline in U.S. tight oil production should correct a substantial proportion of the world supply surplus by mid-year.
This suggests that prices may rebound strongly in the second half of 2015 even without an OPEC production cut assuming that demand does not falter.
By Art Berman for Oilprice.com
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Arthur E. Berman is a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and… More
Comments
More significantly, world conflict will interfere with oil production. New supplies of oil are not only more expensive than used to be, they are also more risky and volatile.
This is "no way to run a railroad" -- an expression no one uses any more. Fossil fuels are like steam railroads of old.
We need to deliberately and intentionally move away from fossil fuel dependency.
Facts are stubborn things. In the FWIW column we are of a similar mind. I figure 50% declines of the current production per rig in 12 to 18 months for each rig that goes down starting on the day it drops. Of course, rigs that have been drilling longer achieve a greater per rig production from the wells drilled but there is a plateau rate and it varies on the drilling rate per well and IP.
Couple decline of shale, increase in consumption when the weather breaks, general global increases in consumption, natural well decline, decline in domestic strippers with dropping oil price and frozen water disposal and you have a balance point somewhere mid-year without too much trouble getting the numbers to fit.
We are contrarian to many. Buffet I can't figure today.
In June I bet they dont decrease but instead increase.
There is nothing there trust worthy.
Market share and money.
Wow, you guys are clueless as to how business works. Keep dreaming, reality will keep slapping you upside the head.