Random Look At Production Change Month-Over-Month By Operator In The Bakken -- September, 2015/2016; The Red Queen Efffect -- December 19, 2016

The following table was based on data previously posted on the blog. In previous posts, I posted the same information but at one post I had the September, 2015, data; and, at another post, I had the September, 2016, data. But to the best of my recollection, I never put the data side-by-side, comparing the change year-over-year by operator.

I had the September 2015 data for Denbury and Liberty Resources  but not their 2016 data so I did not include those two operators in the table.

Again, the usual disclaimer. I put together original spreadsheets together fairly quickly. I did not triple-check the data. I'm not even sure I double-checked some of the data. There are a gazillion places where mistakes could have been made. I did this for my own benefit, for the archives. Do not quote me on any of this. If this is important to you, go to the sources which have been previously posted.

OPERATOR	CHANGE YOY 2015 - 2016	CRUDE OIL SEPTEMBER 2016	CRUDE OIL SEPTEMBER 2015
CLR	-28%	2,736,305	3,783,108
HESS	-23%	2,734,712	3,538,188
Whiting	-32%	2,723,465	4,008,393
XTO	-6%	2,200,708	2,335,885
Statoil	30%	2,072,393	1,590,051
BR	-10%	1,903,339	2,120,916
MRO	-18%	1,474,297	1,794,554
EOG	-12%	1,438,153	1,636,947
Oasis	-16%	1,434,268	1,706,976
QEP	-12%	1,371,969	1,567,345
HRC	-15%	862,910	1,020,754
SM Energy	11%	804,187	722,835
WPX	-16%	738,884	884,117
Slawson	-22%	674,734	867,786
ERF	1%	637,140	630,284
Newfield	-19%	519,787	638,196
Zavanna	-6%	375,447	400,847
Triangle	-21%	275,629	348,277

I was reminded to do this y-o-y comparison after reading this quote from COP's 2016 analyst day presentation:

At last year's Analyst Meeting, we thought we needed 12 to 13 rigs to hold this production [unconventional output] from these three areas flat. We now estimate that off the low point in 2017 we could hold production with only six rigs -- half as many rigs -- and we could grow production about 20% in these three areas by running about 15 rigs. These are the kinds of changes that allow us to hold our production flat for just $4.5 billion of capex per year.

That's a pretty startling comment. This has to do with COP's activity in its unconventional plays, the Bakken, the Eagle Ford, and the Permian. COP clearly stated that the engineers thought they would need 12 to 13 rigs to hold production flat year-over-year, but new data showed that COP could hold production flat year-over-year with only six rigs. Wow.

Assuming all things otherwise equal, if production remains the same year-over-year with half as many rigs, one of two or three or more things, or a combination of these things, must be occurring:

• the geologists are getting better and better at locating "tier 1" spots
• operators will concentrate on "tier 1" spots in 2017 and reserve "less good" spots for the out years
• roughnecks, geologists, and technology are getting better at keeping the horizontal in the seam
• the newer rigs are more effective / efficient producing oil (for example, reaching TD more quickly)
• less down time for rigs moving between wells
• completion techniques improving
• decline rates "improving" (for many of the same reasons noted above)

The interesting thing is that just one year earlier, the COP engineers and geologists thought they would need twice as many rigs to maintain production.

Again, all things being equal, might hunch is that in calendar year 2015 and calendar year 2016, operators were concentrating on "tier 1" locations. They are likely to concentrate on "tier 1" locations through 2017. If accurate, then we are closer to comparing apples to apples -- comparing 2015 to 2016 to 2017 all with an emphasis on "tier 1" locations.

We'll never know what COP "saw" or "changed" to determine that they could maintain production with half as many rigs as originally thought. If one assumes COP was concentrating on "tier 1" locations in 2016, that eliminates a huge variable explaining why COP needs half as many rigs as originally thought.

For newbies: several operators are suggesting that EURs are increasing from 750K to 900K (currently) and moving toward 1.5 million boe. It is also said that "half" of the EURs is generally recovered in the first five to nine years.