U.S. oil output slide looms as shale firms hit productivity wall

Wed Oct 21, 2015 5:00pm EDT
 
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By Anna Driver and Terry Wade

HOUSTON (Reuters) - Stagnating rig productivity shows U.S. shale oil producers are running out of tricks to pump more with less in the face of crashing prices and points to a slide in output that should help rebalance global markets.

Over the 16 months of the crude price rout, production from new wells drilled by each rig has risen about 30 percent as companies refined their techniques, idled slower rigs and shifted crews and high-speed rigs to "sweet spots" with the most oil.

Such "high-grading" helped shale oil firms push U.S. output to the loftiest levels in decades even as oil tumbled by half to less than $50 a barrel and firms slashed rig fleets by 60 percent.

But recent government and private data show output per rig is now flatlining as the industry reaches the limits of what existing tools, technology and strategies can accomplish.

"We believe that the majority of the uplift from high-grading is beginning to wane," said Ted Harper, fund manager and senior research analyst at Frost Investment Advisors in Houston. "As a result, we expect North American production volumes to post accelerating declines through year-end."

Drillinginfo, a consultancy with proprietary data, told Reuters well productivity has fallen or stabilized in the top three U.S. shale fields - the Permian Basin and Eagle Ford of Texas and the Bakken of North Dakota – since July or August.

The U.S. Energy Information Administration, whose benchmark drilling productivity index is based in part on Drillinginfo data, forecasts next month's new oil production per rig in U.S. shale fields to stay at October levels, which it estimates at 465 barrels per day (bpd).

The big challenge of shale oil work is that well output drops off quickly - often more than 70 percent in the first year alone. So producers need to keep squeezing more oil out of new wells drilled by the currently deployed rig fleet just to offset steep declines in what existing wells produce.   Continued...

 
Pump jacks are seen in the Midway Sunset oilfield, California, in this April 29, 2013 file photo. REUTERS/Lucy Nicholson/Files