There’s been plenty of hand-wringing in recent weeks as America’s oil rig count has dropped precipitously in the face of plunging crude prices. Oil producers aren’t getting as much for their product these days, so they’re cutting costs and idling many of their rigs. This has sparked worries that the shale boom’s best days are behind it, but as the FT explains, a lower rig count doesn’t necessarily translate into lower production:
US oil explorers and producers in important shale regions, such as the Bakken in North Dakota, appear to have a backlog of unfinished drilling. The US Energy Information Agency believes that unless this drilling inventory comes down onshore production will remain steady this year in the continental US at around 7m barrels per day, assuming a $58 average Brent oil price.Drilling rig count changes in these key regions, according to Goldman Sachs, have shown little correlation to oil production. All that the explorers have done so far is cancel inefficient or underused rigs. Indeed, the rig count for the horizontal rigs often used in the Eagle Ford region of Texas has not changed in four years, despite a tenfold increase in oil production. That suggests rig productivity has improved. Goldman believes that the rig count would need to fall at least another fifth before there is any meaningful decline in production.
So for a number of reasons, the rig counts isn’t an entirely accurate metric by which to gauge the health of America’s oil production. The EIA revised its forecasts for 2015 oil production downwards in the face of today’s bear market, but it still expects U.S. output to grow this year. As the industry refines (no pun intended) its techniques and gets more crude out of every well drilled, it makes rig counts less relevant while improving its ability to turn a profit, even with oil prices below $60 per barrel.It seems reports of fracking’s death have been greatly exaggerated.