If you were looking for a sure sign that the shale phenomenon has shifted to crude oil, look no further than the Smith Bits rig count last week. These are horizontal-only numbers, split between the primary commodity target of the rig.
Eighteen months ago there were about 250 horizontal oil rings versus about 650 horizontal gas rigs. Just before Christmas the counts were about equal at 585 each. On January 6th, the gas count dropped to 554 while crude headed up to 596.
Of course, lower rig counts for gas no longer translate to lower production. Shorter drilling times and high horizontal IP rates can keep gas production stable even with rig counts falling. But at this rate of decline, continued increases in gas production seem unlikely. And as noted in this blog before, the economics for dry gas drilling are far inferior to wet gas with $100/bbl oil and $3/MMbtu gas. So watch out for steeper declines in dry gas production. (Evidenced in a Platts article last week “Barnett Shale continues to lose its luster for producers” .)
“Gangbusters” is the best description of what is happening on the crude side. More rigs, higher efficiencies and huge investment programs make escalating rates of crude production look ever more likely. Perhaps we’ll look back on forecasts of 2-3 MMb/d growth in U.S. production over the next few years as hugely conservative.
