Drilling Rig Productivity

By Friday (January 9, 2015) crude prices had fallen 55% since June 2014, natural gas prices are at the lowest since 2012 and natural gas liquids are suffering as well. The potential revenues from U.S. shale oil production in 2015 would be a whopping $66 billion lower at $50/Bbl than when oil was  $100/Bbl last year. In this new world where prices may not return close to pre-crash levels for a number of years, producers are scrambling to reconfigure drilling budgets and locations. The exercise is all about rates of return and figuring out breakeven prices. Today we start a new series looking under the hood at production drilling economics including results from our own models.

As we move into the Golden Years of U.S. natural gas, it is important to understand the long-term sustainability of such a large expansion to U.S. natural gas supplies and their uses.  Our strong conclusion is that US natural gas supply will comfortably meet expected increases in demand in the years out to 2025. And that is important, because if the rapid expansion of demand, including hotly debated sectors like LNG exports, really did start putting strain on the nation’s gas supplies, prices could be higher going forward. But if sufficient confidence exists in the ability of producers to supply enough gas to meet plausible demand scenarios for a long time to come, then stable prices can be expected (and are), which will allow some industrial demand projects to actually get built. Today’s blog concludes our series on natural gas supply and demand.

The second release of the EIA’s new monthly Drilling Productivity Report (DPR) for November came out on Tuesday (November 12, 2013) showing December natural gas production is expected to increase in four of the six regions covered. But one region alone – the Marcellus – accounts for 76 percent of natural gas production growth. In fact if the Marcellus were a country it would rank 5th in world gas production – ahead of Qatar. The DPR provides a breakdown of rig productivity and production from new and legacy wells and includes access to historical data back to 2007. Today we continue our review of the latest Energy Information Administration’s  (EIA) report.