19 December 2014, News Wires – Rig counts have trended lower in recent weeks, and the drop is right on schedule, according to online economic blog Zero Hedge.
There is a lag time of about four to six months before initial declines in crude oil prices lead to a reduction in rig counts, and it’s been about that long since crude oil prices began sliding last summer.
There can be a reduction of as much as 10 to 25 percent in the number of wells without making a large difference in production, Berkeley Research Group Managing Director Rick Chamberlin told Rigzone.
“Production will continue to grow, but it just won’t grow at the same rate,” Chamberlain said, adding that until the Organization of the Petroleum Exporting Countries (OPEC) agrees to lower production values, U.S. crude oil producers will start ”focusing on the sweet spots” – the most productive areas of the shale formations they are drilling in.
They will also try to maximize efficiencies – essentially, to get more bang for the buck – by optimizing wells on a cost/return basis, such as having fewer completions on a lateral, he said.
New wells are projected to produce an average of 3 more barrels of oil per day in January 2015 than in December 2014, according to the Energy Information Administration (EIA) in its Dec. 8 Drilling Productivity Report.
Output is also expected to increase “to the highest level since 1972.” The Bakken, Eagle Ford, Permian, Niobrara and Utica formations are all expected to yield a new-well oil production figure in January, 2015 that is 5-8 barrels of oil per day higher than the expected December 2014 figures, according to the EIA’s report.
A drop in production values is considered unlikely unless the oil price slide is lengthy, the Energy Collective said. While crude oil prices have weakened considerably, the price slide is unlikely to be protracted, Chamberlain said.
“I don’t think prices were expected to drop as quickly or as much as they did; the [OPEC countries] may have overshot the mark. I expect them to cut production soon to increase prices.” Earlier in December, the rig count in the Permian Basin fell by 20 to 548 operating rigs, Zero Hedge said.
Elsewhere in the United States, the rig count fell by nine, resulting in a total rig count drop of 29 in one week. It was the worst week for rig counts since March, 2013, Zero Hedge noted, and the third-most in the last five years.