Why I Love To Blog, Reason #3 -- February 22, 2016

Updates

February 26, 2016: Bloomberg graphic -- collapse of the drilling industry in the US. For me, it's not the rig count, but the production data that is important. 

 

Original Post

 

Part of this was addressed on the long rambling note from Sunday, but I've discussed this for quite some time. In fact, I was just getting ready to do another post on whether rig counts matter in the Bakken any more but Don beat me to it by sending me this link, from Investor's Business Daily:

But U.S. oil output, though off peak levels, has held up remarkably well. That’s in large part because Continental Resources, Concho Resources and other shale producers are becoming, well, more productive with every well. They focused on the best wells, kept the best crews, while employing new technical advances and practices. They’ve also been able to squeeze suppliers and services firms such as Baker Hughes, Schlumberger and Halliburton.

• Bakken Shale new wells should produce 737 barrels per day in March, up from 558 bpd in March 2015. That’s a 32% increase — 88.5% vs. March 2014.
• Eagle Ford new wells are expected to generate 812 barrels per day in March, up from 665 bpd a year earlier. That’s a 22% jump.

But think about this. At the peak of the boom, operators were drilling/completing about 200 wells/month using upwards of 200 rigs and producing about 1,000,000 bopd.

Now, it looks like operators in the Bakken can drill about 100 wells each month with 30 rigs.

Think about that: at the height of the boom, operators drilled about 200 wells each month with 200 rigs.

Now they're drilling about 100 wells each month with only 30 rigs.

At the height of fracking, there was a backlog of about 240 wells that needed to be fracked. Now there are, by design, upwards of a 1,000 wells waiting to be fracked.

And these wells are sitting in the sweetest of sweet spots and with the halo effect are going to increase production from older wells.

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Here are some cherry-picked examples of how oil productivity is increasing in the Bakken. The first column is the name of the oil Bakken field; the second column is the November, 2015, oil/well for that oil field, and the third column is the December, 2015, oil/well. (Note: this is not statistically significant or meaningful; it is simply interesting. There are many other fields that showed a decrease in production/well. In addition, these are ALL wells; if we were simply comparing new wells in 2016 with new wells in 2013 the numbers would be even more remarkable):

Field	November  Oil/Well/Month	December  Oil/Well/Month
Antelope	5,842	6,004
Corral Creek	4,889	5,162
East Fork	4,357	5,167
Mandaree	3,587	4,645
Camel Butte	8,691	10,249
Pershing	4,674	6,792
Long Creek	7,781	8,311
North Tobacco	3,490	5,128
Tyrone	2,864	3,640

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From above:

Now, it looks like operators in the Bakken can drill about 100 wells each month with 30 rigs.

Think about that: at the height of the boom, operators drilled about 200 wells each month with 200 rigs.

Now they're drilling about 100 wells each month with only 30 rigs.

That data was taken from 1Q14 and 1Q15. Those were the number of wells coming off the confidential list in January, 2014, and January, 2015, so it would reference the number of wells drilled earlier, so it's not exactly exact. But exact enough for government use. LOL.

Whatever.

The immediate question is how can this be? Why would they only drill 200 wells with 200 rigs each month and drill 100 wells now with only 30 rigs.

Some quick reasons to explain this:

• there were many more operators drilling during the boom and they had their won "spread out" schedule (smaller operators with two rigs might only drill sporadically)
• even big operators drilled at their own pace
• resource constraints (trucks, manpower, electricity access -- yes, electricity hook-ups were a chokepoint for getting new wells on-line
• infrastructure has come a long way: there used to be long waits for material, sand, water; many wells were delayed simply because there were delays "completing the wells" for lack of sand, etc. 
• pads have been completed; all roads are in much better condition 
• flaring rules have been relaxed; takeaway capacity is not an issue
• weather / environmental conditions affect everything
• operators are getting better at drilling; geologists understand the middle Bakken a whole lot better
• the best-of-the-best drillers were kept; others were laid off during the slump 

There might be a bit of hyperbole involved with regard to the number of rigs; six months ago, the number of rigs were probably closer to 60 in number rather than 30, but the general points remain intact.