Someone finally gets it. Link here. Rig counts don't matter. How long have I been saying this? Finally, someone gets it. This will be re-posted as a stand-alone post. Perhaps the only thing that needs to be read this week. Maybe this month. Stay tuned. I will post the link later. Don't worry I won't forget. It's a great article. The writer made only one mistake of any real substance. Archived.
Mr Messler begins:
I have written on shale production in the U.S. a number of times over the past couple of years for OilPrice.
My expectation that shale production would fall sharply to ~5-6 mm BOEPD by the end of 2020, has not been borne out.
My view was that a lack of drilling/completion activity due to adverse price conditions would cause production to fall sharply.
Historical annual decline rates for shale wells can be as high as 60% in the first year. [Another meme.]
In this article I discuss some of the reasons I feel this has occurred and what it may portend for oil supplies and prices going forward.
Actual production though has stayed at levels I didn't think would be possible last year. I am on record as having thought U.S. shale production would finish 2020 between 5-6 mm BOEPD.
As of the most recent EIA Drilling Productivity Report, U.S. shale production from the seven major plays has remained in a range of 7.6-7.5 mm BOEPD. [And production would be much higher if prices justified greater production.]
Why was author wrong earlier on?
- technology: drilling / completion -- extracting more oil per unit of interval than even just a few years ago
- operator high grading of their portfolios to focus almost solely on Tier 1 acreage
And then get this: rigs don't matter
Finally, production is somewhat delinked currently from the rig count, which still is less than half what it was before the pandemic. Operators have been choosing to bring Drilled but Uncompleted Wells-DUCs, online to maintain a flat to slightly rising production level, as opposed to mobilizing a lot of rigs to make new wells. In December, for example 159 DUCs were withdrawn from inventory as noted in last month's EIA-Drilling Productivity Report.
Again, the writer must be talking mostly about the Permian.
Active rigs in the Bakken are well below "less than half what they were before the pandemic." The NDIC says the Bakken has about 15 active rigs; Baker Hughes puts the number even lower by one or two. And, yet, production has pretty much plateaued; production certainly hasn't "followed' rig count.
I do take issue with the comment about DUCs. I've seen it anecdotally, and another reader has provided monthly data to suggest, that overall, in the oil basins, DUCs have not decreased much.
In fact, the DUCs that do get reported in the Bakken have come to the end of their regulatory deadline and must be completed or plugged and abandoned. Operators in the Bakken don't seem to be completing DUCs to maintain production; DUCs being reported as completed are almost entirely at the regularly deadline and must be completed. And even then, anyone following this closely, note all the wells that are "said to have come off the DUC list, and yet they are not reporting any production; most have not even been completed.
The "operators relying on DUCs to maintain production" has become a meme that is not true in the Bakken. I think that's also true in the Permian but I don't follow it closely enough to say with confidence.
The author addresses the Tier 1 concern:
One of the questions that often comes up is what will happen when Tier I acreage is drilled up. Some estimates have been put forward that this might occur within the next decade.
Rystad has challenged those estimates showing an estimate of the longevity of Tier I shale in years at present rates of drilling.
It comes as no surprise the Delaware sub-basin of the larger Permian basin is the king of shale, and operators there will retain a low cost drilling advantage for a number years beyond other plays.
Folks may want to go back and review the original Leigh Price study.
In addition, "Tier 1" is not static. Not only has the Tier 1 footprint grown significantly in the last few years, Tier 1 acreage is "getting better."
If one wants to be amazed, or let's say "woke" in this case, see the Rystad graph at the link. The initial Rystad estimate was made in 2019; the current Rystad estimate was made in 2020.
With regard to Tier 1:
Of interest also is a recent report that challenges some of the assumptions about lower tier acreage being substantially less valuable than Tier I.
In a 2019 article carried in the Journal of Petroleum Technology, a Deloitte study was showcased that showed some geological shortcomings could be overcome by application of technology of the type we have discussed in this article.
Further it challenged the assumption that rock quality alone was the determinant in obtaining maximum production from a well. We won’t develop that concept further in this article, except to note that it plays into the larger thesis that American shale production will be a vibrant contributor to the nation’s energy security for decades to come.
Wow, wow, wow -- that's been another consistent theme on the blog: the assumption that rock quality alone was the determinate in obtaining maximum production from a well. We would begin with the microseismic array but then we would have to do some real research.
Again, one may want to re-read the original Leigh Price article.
