Thanks to plunging oil prices, the number of onshore drilling rigs active in the continental United States has dropped 16 percent since Halloween. But as the EIA reports, the bonanza prior to this recent price drop has produced more wells than operators have had a chance to fully exploit:
This backlog of wells acts as a cushion for production rates, offsetting the more immediate decreases in drilling and permitting activity. At most major plays in the United States, the backlog currently ranges from three to seven months. When drilling activity remains at reduced levels long enough to outlast the cushioning effect of the well-completion backlog, the number of new wells brought online will begin to decrease, which can eventually reduce production rates.While the cushion provided by the well-completion backlog changes from formation to formation, EIA’s forecast of rising crude oil prices in the second half of 2015, if realized, is expected to be accompanied by a stabilization of drilling activity that would be sufficient to prevent a substantial production decline in the Lower 48 region.
In other words, despite the relatively quick depletion rate of America’s shale wells (a factor that surely played in to the Saudi calculation that the U.S. could take over the role of the global oil market’s swing producer), there exists a buffer of already-drilled wells that should buoy production for some time yet. In fact, the EIA expects American production in 2015 to exceed 2014’s by nearly 1 million barrels per day.This is very bad news if you’re a petrostate. America’s new shale supplies have been an integral part of the supply-side reason for the recent price slide, and stable U.S. production means fracking operators can’t yet be counted on to act as swing producers. For Russia, Venezuela, Iran, and even Saudi Arabia, this means 2015 is shaping up to be the year of big budget deficits.