EIA may drilling productivity report is out

Highlights from the EIA drilling productivity report released yesterday

4 key highlights:

1. 1      Drilling efficiency is still improving in all plays across the board.
2. 2     Eagleford oil production growth is still the highest, but it is decelerating
3. 3      Permian oil production growth accelerated in the last month significantly.
4. 4     Gas production in the Haynesville went from declining two months ago, to up slightly last month, to slight increases last month and this.

Bakken growth pretty much held steady at 22mbbl/d (vs 21 last month).  Eagleford rate of growth slowed a bit at 27mbbl/d vs 31 last month.  Niobrara region continued growing at its modes 4 mbbl/d rate vs 5 last month.  I’m wondering when we’ll see some more growth there.  There is a ton of talk from APC, WLL, EOG, SWN about new productive fields in the region.

Permian oil production growth accelerated from 13mbbl/d growth month over month in the April report, to 21mbbl/d in this report.  It would be interesting to home in on where the growth is coming from within the region.  Although we are seeing some modest gains in drilling efficiency, the pick up may also be due to the increasing rig count there.  They have now eclipsed the multi-decade high set in 2012, and they are approaching 550 active rigs in the Permian basin.  Just to give a sense of scale, there are about 690 active rigs in all of Europe, Latin America, and Africa according to Baker Hughes.

The growth in Haynesville is the most interesting to me.  Two months ago it was declining, and last month and this it has reversed to modest growth.  CHK had mentioned that they were increasing rigs there.  Drilling efficiency had been flattish since mid 2011 using the EIA metrics, but now appears to be increasing again.  Between increases in drilling efficiency and the higher gas prices, the economics in this play have certainly improved.  Rig count is creeping up towards 50, far below the peaks of 250 set a few years ago.

Overall, there is no doubt that drilling the Haynesville is far less capital efficient than Marcellus.  Using the EIA new gas production per active rig, Marcellus is at about 6.5 mmcfd of new production per rig vs 5.0 mmcfd in Haynesville, but this does not fully capture the difference in economics , since many of the Marcellus wells are producing significant liquids and Marcellus wells are much cheaper.  It’s not clear whether NGLs are counted in this gas production figure, but even if they are, they are worth more per BTU, so the value of an mcf of Marcellus production would be worth more than a mcf of Haynesville production, which is dry-gas only.  Also I believe that Haynesville wells are significantly more expensive because the formation is at 10,000-13,000 ft depth compared to Marcellus depth of between 4,000 and 8,000 ft.  Between all these factors, Marcellus has far superior economics.  But Haynesville has something that Marcellus does not, ample take-away capacity and lower transport differentials.