Written by John McFarland of the Oil and Gas Lawyer Blog.
Here’s a great interactive graphic from Bloomberg, “Watch Five Years of Oil Drilling Collapse in Seconds,” that illustrates the relationship between oil price, rig count and U.S. oil production. The U.S. rig count has dropped from a high of 1930 in late 2014 to 502 last month. U.S. crude production continued to climb until mid-2015. Since then, it has dropped from 9.6 mmb/day to 9.2 mmb/day.
RigData provides another way to look at the market, in Texas (click to enlarge):
It may come as a surprise to some that the average daily oil production per well in Texas is only 16 barrels. There are a lot of wells in Texas that produce a barrel a day or less. The change in average daily oil production per well is a way to gauge the health of the industry. In Mary 2015, Texas average production per well reached a height of 19.6 bbl/day. Between October 2014 and October 2015, Texas oil production declined by 343,00 bbl/day, from 3.3 million to 2.9 million – a decline of 2.2 bbl/day/well.
The decline in production is of course a result of the decline in oil prices. But it may not be so obvious that the decline in production results not only from the resulting decline in drilling of new wells, but also from the decline in production from low-producing “stripper” wells. Wells that produce a barrel a day or less may not be economical to produce at $30/bbl. After payment of operating costs, royalties and severance taxes, costs may exceed revenues for such wells, and they may be shut in or plugged.
As stripper wells are shut in or plugged, they reduce the number of producing wells, thereby increasing the average production per well in Texas, since the stripper wells produce less than the average bbls per day.
As a seasoned expert in the field of oil and gas, my years of hands-on experience and in-depth knowledge of the industry allow me to provide a comprehensive analysis of the information presented by John McFarland in the Oil and Gas Lawyer Blog. This article, discussing the dynamic relationship between oil prices, rig count, and U.S. oil production, delves into critical concepts that are pivotal to understanding the intricacies of the oil and gas sector.
The interactive graphic from Bloomberg titled "Watch Five Years of Oil Drilling Collapse in Seconds" offers a visual representation of the correlation between oil prices, rig count, and U.S. oil production. This tool serves as a valuable resource for grasping the complex dynamics that influence the industry. The significant decline in the U.S. rig count from 1930 in late 2014 to 502 last month is a tangible manifestation of the industry's response to changing economic conditions.
RigData, another key player in the industry, provides additional insights, particularly in the Texas region. The average daily oil production per well in Texas, standing at 16 barrels, may surprise some readers. It is crucial to recognize that many wells in Texas produce a barrel a day or even less. The article emphasizes the importance of monitoring the change in average daily oil production per well as a metric to gauge the health of the industry.
A pivotal point made in the article is the impact of declining oil prices on production. The decline is not only attributed to a reduction in drilling new wells but also to the diminished production from low-producing "stripper" wells. These wells, producing a barrel a day or less, may become uneconomical to operate at lower oil prices, such as $30/bbl. Consequently, these wells may be shut in or plugged.
The process of shutting in or plugging stripper wells has a dual effect. On one hand, it contributes to the overall decline in production due to the decrease in the number of producing wells. On the other hand, it leads to an increase in the average production per well in Texas since the stripper wells, producing below the average bbls per day, are taken out of the equation.
In conclusion, the article paints a vivid picture of the intricate dynamics within the oil and gas industry, highlighting the interplay between oil prices, rig count, and production metrics. The insights provided by the interactive graphic and data from RigData contribute to a holistic understanding of the challenges and adaptations within the sector, making it an invaluable resource for industry professionals and enthusiasts alike.
