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U.S. Oil Rig Count Rises to Highest Level Since 1993

General discussions of the systemic, societal and civilisational effects of depletion.

Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby ROCKMAN » Sat 05 Mar 2016, 07:35:48

tita - Good point but there shouldn't be any confusion if folks clearly say what they mean. The oil and gas rig counts are what they are and "rig count" is the combined oil and gas rig count. Which is a critical number IMHO because it implies much about our national ENERGY dynamic. Separately we can discuss oil vs NG dynamics. But the nature of the country's ENERGY dynamic: we now have fewer rigs developing OIL AND NG then we have had since 1973 according to Baker Hughes. Your chart of total rig count is a tad out of date but very useful highlighting the different targeting phases.

Buf it looks !ike the first 40% of the unconventional oil phase is still part of the NG boom and not much for oil. But I think most get your point and it's an excellent one..
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby Tanada » Mon 26 Sep 2016, 11:47:30

I had to look up this data for a different post but it should be here as a six month update of Baker Hughes drilling rig data.

U.S. 23 September 2016
Total oil rigs active. 511
Increase from one week ago, 16 September 2016 +5
Change from one year ago, 25 September 2015 -327

For comparison purposes for the year 2014 the oil industry averaged 1,862 active rigs and a year ago there were 838.

IOW drilling this week stands at 27 Percent of the average 2014 rate and 61 percent of September 2015 rate.

Quick, somebody tell me again that most Shale fracking is profitable at $50/bbl! Or was it $25/bbl?

Based on just these real world numbers and ignoring the externalities seems like even at the $60/bbl we had in first half 2015 about half of the wells in the big fracking plays were not worth drilling, but what do I know? I am just some random voice on the Internet.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby ROCKMAN » Mon 26 Sep 2016, 17:45:36

T - What may be even more telling about the industrty's expectation of profitability isn't the drilling rig count but how many DUC's are still waiting on a completion rig and frac crew. It costs about half as much to complete a cased shale well then to drill and complete it a new one. According to various reports thousands of DUC's still waiting for a completion to start producing those "big profits" and stop the production slide. Long before we see a return to a serious new shale drilling surge we should see the DUC's go extinct. But not close to that day yet.

Something the shale cornies don't think about when they toss out upbeat thoughts.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby rockdoc123 » Tue 27 Sep 2016, 11:20:11

Quick, somebody tell me again that most Shale fracking is profitable at $50/bbl! Or was it $25/bbl?

Based on just these real world numbers and ignoring the externalities seems like even at the $60/bbl we had in first half 2015 about half of the wells in the big fracking plays were not worth drilling, but what do I know? I am just some random voice on the Internet.


The breakeven price refers to the price at which NPv(10) = 0. Above that some profit is made. So yes there are lots of areas in US shale according to the most recent analyses that have breakeven prices below $50, many below $45. But that does not mean there will be a wholesale rush to drill. A number of companies have been quite forthcoming that they need to see prices stabilize well above $50 before they get the confidence needed to invest further capital. Also remember that all of the areas with low breakeven prices are already held by companies. Those companies have been struggling with the low price for some time, many have debt to service. To be able to withstand the lower prices they have cut staffing levels to an all time low and released any contractors who previously may have had longer term deals for services. As a consequence these companies are not going to just turn on a switch when the price bumps over the breakeven mark, they will need to see a clear path to higher prices for sometime in the future. Given the uncertainty with what is happening in Algiers today anyone trying to come up with a meaningful forward strip is kidding himself. So that uncertainty of when prices will stabilize at a much higher rate is still there. Notwithstanding the fact that the reason drilling was so aggressive over the past few years has been readily available debt financing for the unconventional industry. With low prices (which the banks did not anticipate in their models properly) that financing has disappeared and it will likely be sometime after prices have risen substantially and stabilized before any significant amount of debt financing becomes available. Couple this with the fact that most companies have resigned themselves to live within cashflow for the next number of years. As a consequence what I believe you will see is a slow return to "targeted" activities which means the frack log wells or DUC will be addressed first as Rockman points out, new technology that allows for cheap recompletions will be deployed in wells that have seen production issues and close infill drilling from pads in sweet spots. My guess is the speed at which the return to drilling will occur is slow enough that you will not see the US unconventional peak we previously saw (declines having overwhelmed additions).
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby tita » Fri 21 Oct 2016, 06:36:06

Since June, the oil rig count has increased by more than 100, and is around 432 now. This lead some analysts to think that these new rigs will increase production. But the fast depleting nature of tight oil means that we can't just put the equation "more rigs = increased production", because the decrease of legacy production must be first compensated before overall production is increased.

My question: At what level the rig count has to be to increase the production of tight oil?

When we look at the rig count, we see that it began to decrease seriously from dec 2014 to may 2015. Then, it stabilized around 650 till sept 2015, began another fall till may 2016 to 318. Since then, the count got back to 432.

Production peaked in april 2015 and was somewhat steady till september. Many wondered how it was possible for tight oil to sustain although rig count was half, and advances explanations about technology and other bullshit. In 2014, there was as much rigs in the US than all the rigs in the world. This was huge, and half of it (650) was still huge, but not enough to sustain production, because it decreased after sept 2015.

I think many analysts won't understand why the production will keep decreasing while rig count is increasing. Thanks to all the bullshit that have been said through 2015. We still need to double the actual rigs to increase production.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby ROCKMAN » Fri 21 Oct 2016, 07:09:49

tita - "...many analysts won't understand why the production will keep decreasing while rig count is increasing". Same common problem with terminology: "adding" production is not the same metric as "increasing" production. Even when the rig count fell below 400 NEW oil wells were being added. So while production was decreasing more oil was being added to the metric...just not enough to offset the decline. Similar problem when folks talk about the cost to "produce oil" they typically mean the cost to drill new wells and not the cost to produce existing wells.

And then there's the common problem with "expert" analysts unable to appreciate the time lags involved. They see big weekly swings in the oil futures market and get the idea the physical dynamic also changes quickly. And then there's also a minor factor: most oil producers will actual try to increase production from existing wells as much as possible in the face of lower prices.

As I said over a year ago it will be late 2016 to early 2017 before we see the full effect of the oil price collapse on production. And completion of the remaining DUC wells out there might delay it a few months.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby Tanada » Fri 21 Oct 2016, 09:09:50

tita wrote:Since June, the oil rig count has increased by more than 100, and is around 432 now. This lead some analysts to think that these new rigs will increase production. But the fast depleting nature of tight oil means that we can't just put the equation "more rigs = increased production", because the decrease of legacy production must be first compensated before overall production is increased.

My question: At what level the rig count has to be to increase the production of tight oil?

When we look at the rig count, we see that it began to decrease seriously from dec 2014 to may 2015. Then, it stabilized around 650 till sept 2015, began another fall till may 2016 to 318. Since then, the count got back to 432.

Production peaked in april 2015 and was somewhat steady till september. Many wondered how it was possible for tight oil to sustain although rig count was half, and advances explanations about technology and other bullshit. In 2014, there was as much rigs in the US than all the rigs in the world. This was huge, and half of it (650) was still huge, but not enough to sustain production, because it decreased after sept 2015.

I think many analysts won't understand why the production will keep decreasing while rig count is increasing. Thanks to all the bullshit that have been said through 2015. We still need to double the actual rigs to increase production.


Not trying to be pedantic though it may come across as if I am. When they were using every rig they could get their hands on to drill production was constantly climbing because every month (or nearly) the rig count was higher than the previous month. This went on from early 2009 right through late 2014. Those 2009 wells that have not ceased production because of poor resources are still producing as stripper wells or even low level regular producers today and by this time it is likely many of the 2010 wells have also fallen to stripper status.

This is important because wells in this production range can do their low and slow production rate for several decades before they end up being capped off. Here is the thing, all those fracked stripper wells are not terribly different from the vertical wells that were poked into shale formations for the last century. They don't produce quickly, but they keep delivering a low output for a very long time. Drilling long laterals and making multi frack completions costs a lot of money but it also causes a very high initial production rate. When prices are high or the source rock is especially rich, a 'sweet spot', the multi frack horizontal wells can make a lot of money quickly.

I saw an estimate recently that a multi frack long lateral horizontal shale well will lose about 93 percent of its initial flow within five years. Pause and consider, if that initial flow was 1,000/bbl/d then after 5 years it is still producing 70/bbl/d. To Saudi Arabia that isn't worth bothering with, but in North America that is more than enough to make the well worth producing. At this years average price $41.83/bbl so far in 2016 that grosses $2928.10/d. In many cases the company that drilled that well has gone bankrupt and now someone who bought it at a very deep discount is making money pumping it at a rate that will in many cases very slowly decline for 40 years before it is capped.

But what about all those wells that were never that great to start with and made 200/bbl/d or less? They also decline 93 percent more or less in five years. Yes, and those wells are now stripper wells making 14/bbl/d or less.

The other part of my point is, the aggregate production fro those high depletion rate wells in the first few years. If the well started out at 1,000/bbl/d and ended five years later at 70/bbl/d I forgot how to do my integrals but from figures I have seen that would total about 275,000 barrels in those first five years. Then at 70/bbl/d for the sixth year it produces another 25,550 barrels, and in years seven at perhaps 68/bbl/d it produces another 24,820 and so on so that from years six through sixteen it produces as much oil as it delivered in the first five. That is not the end either, it goes on for as much as four decades after that first fast flow period before it becomes uneconomic. These are very general estimates based on many different sources I have read, and if they are wildly wrong no doubt someone will point out my erroneous ways quickly.

Point being, legacy production from the wells drilled before the bust in late 2014 will keep producing for a long time into the future, and in most cases they will produce more, possibly much more, than they produced in those first five years.

This makes it very complex to calculate just how much drilling it would take to stabilize the oil production rate from the shale formations. My guess, for whatever it might be worth, is more price dependent than number dependent. I think if we get sustained prices in the $60/bbl range drilling will about balance depletion, and if prices get much over $75/bbl drilling will expand enough to start increasing total supply again.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby ROCKMAN » Fri 21 Oct 2016, 13:45:54

Here are some nice visual to get some sense of old (heritage) production decline vs new wells:

http://peakoilbarrel.com/the-eias-drill ... ty-report/

And what you've pointed out is the anti-cliff argument I'd made for years. It varies: EFS wells won't typically have as long commercial life at Bakken wells: a lot more water and higher LOE. OTOH convention reservoirs can produce at stripper rates for 40+ years. Again the production profile of US oil wells: 85% of our wells (310,000 of them) produce between 1 and 15 bopd and deliver almost 1 out of every 5 bbls from all the wells.

https://www.eia.gov/pub/oil_gas/petrosy ... table.html
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby tita » Sat 22 Oct 2016, 07:50:37

Tanada wrote:When they were using every rig they could get their hands on to drill production was constantly climbing because every month (or nearly) the rig count was higher than the previous month. This went on from early 2009 right through late 2014.

Not exactly. The rig count doesn't necessarily has to increase for production to climb. If oil rig count stayed at 1'600, production would have continued to increase until some balance is reached between depletion and addition from new wells. The consequence of the rig count getting higher every months was the shape of the production: a linear increase.

Strippers are important, and produce quite a lot. But currently, 75% of shale production comes from wells added from the last 2.5 years, which have the biggest depletion.

This makes it very complex to calculate just how much drilling it would take to stabilize the oil production rate from the shale formations. My guess, for whatever it might be worth, is more price dependent than number dependent. I think if we get sustained prices in the $60/bbl range drilling will about balance depletion, and if prices get much over $75/bbl drilling will expand enough to start increasing total supply again.

Maybe I'm wrong when I say we need currently 800 rigs to sustain LTO output. This is just thoughts from what was going on in the last 1.5 year. For me, the rig count number is a consequence of the price. I don't know how high and how fast the rig count can climb with actual prices, or even guess what the price will do for the next months, or what opportunities are left at various breakeven prices. And there is a delay between price, decision to drill, investments made, contracts made, etc. Rig count says we drill x number of wells which are coming online in a few months.
Last edited by Tanada on Sat 22 Oct 2016, 09:00:14, edited 1 time in total.
Reason: fixed broken quote
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby ROCKMAN » Sat 22 Oct 2016, 09:32:03

tita - One can build such a model. And since models are absolute proof if any prediction who could argue with the results? LOL.

But like every model ever constructed many critical assumptions must be made:

How many rigs drilling
How long are laterals
How many frac stages
Oil prices over time
etc, etc.

And two last assumptions in order to calculate what it will take produce an constant sustainable oil production rate from the shales:

1) Companies don't drill their best prospects first so future wells will have the same potential as past wells.

2) In addition to constant results from future wells: a never end (at least enough to supply the assumed length of the "sustained" period.

But be prepared for a battle: not once in the history of the petroleum aga will you find any oil/NG trend in which 1 and 2 has been true.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby Tanada » Tue 27 Dec 2016, 12:30:58

I am looking at the December 23 Baker Hughes rig count for North America,
http://phx.corporate-ir.net/phoenix.zht ... portsother

So despite all the downs early in the year through the ups to where we are now for inland drilling rigs.
Last Week of December 2015 675 rigs. Last week of December 2016 627 rigs.
The interesting thing to see though is the 627 number is up from 614 a weeks earlier.

In the oil vs gas rig breakdown Oil is down 15 from a year ago, but up 13 from a week ago. If that trend holds soon the numbers entering 2017 will be moderately higher from the rates of 2016 that were about as low as I can imagine them being any time in the near future. For gas drilling the numbers are not nearly so rosy, down 33 from a year ago and only up 3 from a week ago.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby GoghGoner » Tue 27 Dec 2016, 12:44:22

Always interesting to view rig counts vs. production.

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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby ROCKMAN » Tue 27 Dec 2016, 12:53:17

T - Interesting stats. Thanks. It might also point at the nature of the lag time between changes in prices and drilling activity:

From Jan to Dec 2015 spot oil prices decreased from $47/bbl to $37/bbl (NG $3 to $1.90). And from Jan to Nov 2016 they increased from $32/bbl to $46/bbl (NG $2.30 to $2.60). And yet the rig count change by the end of each period does not seem to correlate.

Just another reason to not try to read too much into short term trends...like over even a year.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby Tanada » Tue 27 Dec 2016, 12:58:10

Lag times between drilling and completion sure make that a confusing graph don't they? Drilling activity plummeted months before the peak production in early 2015. From the looks of that graph drilling rebounded slowly starting at the end of first quarter 2016 but production continued to decline through second quarter before stabilizing for the third quarter and then starting to slowly grow again in fourth quarter 2016.

I had not realized that the number of rigs drilling through mid 2012 to mid 2014 had plateaued, but that was the same time oil prices were quasi stable right around $85/bbl. Then as prices rose in third quarter 2014 drilling activity spiked up leading to the delayed peak in mid 2015 after prices had already crashed into the mid $60's range where they sat for most of 2015.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby ROCKMAN » Tue 27 Dec 2016, 17:19:59

T - Yep, always faster to pull back from a planned drilling schedule then to ramp one up as prices improve. Budgets can be suspended overnight. Increasing one can take months to get the board/management to come around.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby GoghGoner » Thu 29 Dec 2016, 10:06:34

The title is a misleading, credit has barely budged up.

US shale companies to boost spending as banks loosen purse strings

Every six months, oil and gas producers negotiate credit with banks based on the value of reserves in the ground. Through the latest round of talks in the fall, 34 companies had their available credit lines raised an average of about 5 per cent, or more than $1.3 billion, according to data compiled by Reuters.

The combined bank credit for the companies stood at $30.3 billion, compared with $28.9 billion at the end of spring 2016.

The industry’s available credit had been cut by 40 per cent over the past three reviews as it contended with a two-year price rout.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby tita » Tue 03 Jan 2017, 06:36:22

GoghGoner wrote:Always interesting to view rig counts vs. production.

*Oil AND Gas rig count vs Oil production. Quite a bit misleading, especially before 2010 where most rigs were for shale gas production.

Also, US production consist of various kind of fields. GOM production don't use a lot of rigs. The high US rig count is essentially a phenomena of LTO and shale gas. Lag time, delayed completion and price add a lot to the confusion. It's quite difficult just to make a correlation between rig count and price, and it's another level of complexity from rig count to production.
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby Subjectivist » Thu 02 Mar 2017, 17:28:11

Image


Based on this graph drilling is going up almost as fast now as it was in 2010!
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby tita » Fri 03 Mar 2017, 06:34:27

And it's not gonna stop. Oil majors now betting on LTO:
http://energyfuse.org/oil-majors-look-s ... -drilling/
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Re: U.S. Oil Rig Count Rises to Highest Level Since 1993

Unread postby asg70 » Mon 06 Mar 2017, 02:38:51

Subjectivist wrote:Based on this graph drilling is going up almost as fast now as it was in 2010!


The theory put forward here that there isn't enough recoverable shale to power a second round of fracking seems to be in the process of being invalidated. (And this is taking place at a lower price regime than people here predicted was necessary for shale operations to make money.)
Hubbert's curve, meet S-curve: https://www.youtube.com/watch?v=2b3ttqYDwF0
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