Chart of Active Oil Rigs vs Oil Production

Chart of Active Oil Rigs vs Oil Production

The production pattern in the oil industry has undergone significant changes. 

In 2018, the price of Benchmark West Texas Intermediate crude oil dropped from $70 per barrel in August to a low of $45 per barrel by the end of the year. Typically, when oil prices fall, drilling activity decreases after a few months.

Historically, this decline in drilling activity would result in reduced production growth within six to eight months. However, in 2019, Permian production actually increased by 0.7 million barrels per day. Energy companies achieved this growth by utilizing different strategies such as completing previously drilled wells, increasing horizontal drilling, and extending the length of wells.

While rig count decreased, the number of drilled but uncompleted wells (DUCs) in the Permian Basin rose by 35 percent, reaching 3,600 wells from August 2018 to December 2019, as estimated by the Energy Information Administration (EIA).

Producers have been working through this inventory of DUCs by completing these wells. The number of completed wells, which have undergone hydraulic fracturing and started production, increased from 445 to 485 per month in 2019. It peaked at 555 in August of that year, despite reduced drilling activity. This conversion of DUCs into producing wells has contributed to production growth.

The composition of wells drilled has also evolved since 2014. The share of horizontally drilled wells increased from 50 percent to 90 percent between 2014 and 2019, with only a limited number of vertical rigs remaining.

Horizontal drilling, combined with hydraulic fracturing, allows producers to access more oil per foot of pipe by following layers of shale rock underground. Furthermore, the average length of wells has increased, with the average lateral well length growing from 6,000 feet in 2016 to approximately 8,500 feet in the second quarter of 2019. These longer wells, along with the increased use of sand to enhance fractures, tend to boost well production.

As a result of these changes, the amount of oil produced per rig has significantly increased. In 2014, the average oil production per rig was estimated at 130 barrels per day by the EIA. However, in recent years, this figure has risen to an average of 800 barrels per day.

These production gains highlight the productivity improvements and technological advancements in the U.S. shale industry. However, the recent collapse in energy prices suggests that drilling activity may experience another significant drop, leading to a decline in future production.  Link to source.