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BP: Permian Productivity Gains May Have Started To Flatten Out

Over the past five years, U.S. shale production has seen strong and continuous gains in productivity as improvements were made in fracking technology and general know-how, but the most recent data for the Permian suggests that the enormous gains in productivity may have started to flatten out, Spencer Dale, BP’s Group chief economist, said Wednesday at the presentation of the UK supermajor’s annual Statistical Review of World Energy.

U.S. tight oil and natural gas liquids (NGLs) production has surged by nearly 2 million bpd since October 2016, and started to increasingly offset OPEC’s production cuts as 2017 progressed, BP reckons.

“Indeed, the pace of this second wave of growth in US tight oil seen over the past 18 months or so is comparable to the rapid growth seen in 2012-2014 – even though prices in the earlier period were materially higher,” Dale said in his speech.

Yet, according to the most recent data about the fastest-growing U.S. tight oil play—the Permian—‘initial output per rig’ fell sharply in the second half of 2016 and the first half of 2017, before recovering somewhat in the second half of last year.

“But much of the fall in this conventional measure of productivity was driven by a sharp decline in the rate at which drilled wells were subsequently fracked and completed – as the supply chain within the Permian tightened and drilling processes became more complex – rather than by a fall in the underlying productivity of the wells drilled,” BP’s chief economist noted.

Related: Russia Boosts Oil Production Before OPEC Meeting

“It is perhaps not surprising that as US tight oil output has increased rapidly, causing production to spread out from the sweetest spots, productivity has begun to flatten out,” Dale said.

“And, importantly, this measure of productivity doesn’t link directly to profitability, if the cost of drilling continues to fall or if acreage is drilled more intensely. But it does perhaps suggest that the very rapid increases in tight oil productivity that characterised much of the initial phase of the shale revolution may be beginning to fade,” BP’s chief economist noted.

By Tsvetana Paraskova for Oilprice.com

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