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Increased drilling may slow pace of crude oil production declines

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Posted July 26, 2016

Higher and more stable crude oil prices are contributing to increased drilling in the United States, which may slow the pace of production declines. Benchmark West Texas Intermediate (WTI) crude oil prices averaged $46.59 per barrel (b) over the past three weeks, a 40% increase over the average price in the first quarter of 2016. The rig count for active onshore rotary rigs in the Lower 48 states, as measured by Baker Hughes, stood at 352 rigs on July 22, 45 rigs above the number at the end of June. Although declines from existing wells are expected to result in a net decrease in production, increased drilling and higher well productivity are expected to partially offset the decline.

Image credit:  U.S. Energy Information Administration

Image credit: U.S. Energy Information Administration

Released each Friday, the Baker Hughes rig count measures the number of active rigs in various basins across North America. Increases in rig counts suggest that production companies are drilling more new wells, which likely will be reflected in higher levels of production from new wells after several months.

In addition to having more rigs drilling new wells, the average productivity of rigs continues to increase. The new-well oil production per rig through July 2016 averaged 796 barrels per day (b/d) in the Bakken region, 983 b/d in the Eagle Ford, and 470 b/d in the Permian, according to EIA’s latest Drilling Productivity Report. These levels represent productivity increases of 155 b/d, 226 b/d, and 111 b/d per well, respectively, over the 2015 averages for these regions.

Image credit:  U.S. Energy Information Administration

Image credit: U.S. Energy Information Administration

The July Short-Term Energy Outlook (STEO) forecasts crude oil production from the Lower 48 states to continue to decline through the rest of 2016, then level off in the first and second quarters of 2017. This production forecast is based on the WTI price forecast in STEO, which rises from an average of $47/b in third-quarter 2016 to an average of $50/b in second-quarter 2017. The price forecast is highly uncertain, and any significant divergence of actual prices from the projected path could change the pace of new-well drilling, which would in turn affect the production forecast.

Source: EIA

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