EIA: Stable oil production outlook in Lower 48 despite near-term rig-count reduction

According to data from Baker Hughes Inc., between the weeks ended Oct. 31, 2014, and Jan. 23, 2015, the number of active onshore drilling rigs in the Lower 48 dropped 16%, reflecting the sharp decline in oil prices over the last quarter of 2014.

EIA's January Short-Term Energy Outlook (STEO) forecasts Brent crude oil prices averaging $58/bbl in 2015 and $75/bbl in 2016, with annual average West Texas Intermediate prices expected to be $3-4/bbl lower. Should its price forecast be realized, EIA projects that the number of operating rigs will decrease by 24% from January to October before beginning to rebound in November. However, EIA noted, the outlook for Lower 48 production reflects more than just the rig count. Other key factors include the efficiency of drilling, which EIA tracks in its Drilling Productivity Report, the rate of decline in production from existing wells, and changes in the amount of time between well spudding and completions.

As an example, permits and drilling in North Dakota declined during the financial downturn of 2008-09, but production rates did not decline as substantially. “At the time of the July 2008 oil-price peak, drilling activity in the Bakken-Three Forks formations outpaced well completion activity as increasing numbers of wells were drilled. Averaging about 70 days before the oil-price peak, spud-to-completion times almost doubled in 2 months, reaching more than 130 days. This increase created a backlog of wells that had been drilled but not yet completed. As fewer wells were drilled during the subsequent drop in oil prices, the spud-to-completion times decreased. Increased drilling activity in the Bakken since 2011 has once again increased spud-to-completion times, which have stabilized at more than 120 days/well, almost twice previous minimum levels,” EIA said.

According to EIA, this backlog of wells acts as a cushion for production rates, offsetting the more immediate decreases in drilling and permitting activity. At most major plays in the US, the backlog currently ranges 3-7 months. When drilling activity remains at reduced levels long enough to outlast the cushioning effect of the well-completion backlog, the number of new wells brought online will begin to decrease, which can eventually reduce production rates.

While the cushion provided by the well-completion backlog changes from formation to formation, EIA’s forecast of rising crude oil prices in the second half of 2015, if realized, is expected to be accompanied by a stabilization of drilling activity that would be sufficient to prevent a substantial production decline in the Lower 48 region. Different outcomes are entirely possible under other price scenarios.

Did You Like this Article? Get All the Energy Industry News Delivered to Your Inbox

Subscribe to an email newsletter today at no cost and receive the latest news and information.

 Subscribe Now


Logistics Risk Management in the Transformer Industry

Transformers often are shipped thousands of miles, involving multiple handoffs,and more than a do...

Secrets of Barco UniSee Mount Revealed

Last year Barco introduced UniSee, a revolutionary large-scale visualization platform designed to...

The Time is Right for Optimum Reliability: Capital-Intensive Industries and Asset Performance Management

Imagine a plant that is no longer at risk of a random shutdown. Imagine not worrying about losing...

Going Digital: The New Normal in Oil & Gas

In this whitepaper you will learn how Keystone Engineering, ONGC, and Saipem are using software t...