Drilling productivity and a look at year over year production numbers

Region	New oil production per rig YOY	Total Production YOY growth
Eagleford	23%	32%
Bakken	26%	31%
Permian	11%	28%
Niobrara	28%	23%
Utica	74%	14%

The new EIA drilling productivity report came out yesterday.  There was no real change in trend.  Efficiency gains continue at about the former pace, as does production growth in the key regions.  We have seen no obvious effects yet from the capex cuts.  The rate of growth of the big three unconventional oil plays (Eagleford, Bakken, Permian) clearly will have to slow down at some point.  But currently we are seeing no signs of production flattening out, let alone declining.

In percentage terms the rate of growth in Bakken and Eagleford is indeed slowing: for instance in calendar year 2013 production in the Eagleford grew at about 46%. vs 32% this year.  But this is just because there is a higher total production.  The rate of growth in terms of barrels per day of production was higher in 2014 at about 450,000 b/d growth in crude production, vs 391,000 b/d growth in 2013 for the Eagleford.  Total production is now 1,715,000 B/D making it a top 5 oil field in the world.

Bakken grew production by 314,000 b/d in 2014 vs 198,000 b/d growth in 2013.  Total production is now about 1,300,000 b/d.

The rate of production growth in the Permian has actually been accelerating since oil started to drop.  It grew by 420,000 b/d in 2014, compared to only 202,000 b/d of production growth in 2013.  Total production is 1,962,000 b/d.

I also want to not once again that rig productivity is increasing at a very steady pace.  In the Utica, the 74% increase is off a very low base, so it isn't as impressive as it might seem.  Whenever you hear someone say, "you need $60 oil to make money drilling in the bakken", it may lead you to think about the economics of drilling in overly simplistic terms.  For one the "breakeven" point is a moving target that is always moving lower due to the rapid efficiency gains.  Secondly, service cost increases or decreases can further distort this number.  And finally, it is important to keep in mind that economics vary wildly from one area within the region to another.  I believe that rig productivity numbers may soon start to increase at an even faster pace as inefficient operators and those with poor quality acreage shut down their rigs first.  One anectdote is the report yesterday from Pioneer Resources, a Permian and Eagleford focused E&P.  They intend to cut capex by 45% but they are still planning to grow oil production in 2015 by 20%.   I know of no companies that are projecting declines in North American oil production this year (the oil majors are in perpetual production decline, but this is mostly from overseas).  If the goal of OPEC/Saudi Arabia is to balance the market, then we are still going to have to wait.  We are not seeing signs of production declines from the major high cost producer (us).