Domestic Crude Production Peak? | Russell T. Rudy Energy LLC
A recent article in “Rigzone” cites a report by the U. S. Energy Information Administration (EIA) which predicts that domestic oil production will peak in April at 9.37 million barrels per day (MMbopd), plateau in May, and drop in June. The report predicts production continuing to drop to 9.04 MMbopd in September, and not getting back to the peak level for 18 months.
The crude oil price collapse led to a dramatic decrease in the oil rig count which was down to 802 last week. This is exactly 50% of the October, 2014 level. Production has continued to rise in spite of the drop in rig count due to previously drilled wells being completed and coming on line, as well as timing delays. However, fewer rigs are drilling fewer wells. Further, even fewer of these wells are being completed by operators who are opting to defer completion costs. Consequently, this trend of increasing production cannot continue.
Also, 6 months can elapse from initial drilling to reported production. It can take one month to drill a well, and two more months to complete it. First production might not begin until the middle or latter part of a month so the first reported production would not reflect true monthly production rates. Most states do not require production be reported until two or three months after first production. Then, in some cases, there are “delinquent wells” resulting from operators missing filing deadlines.
For all these reasons, EIA production statistics necessarily include estimates. Unfortunately prognosticators’ two major elements of information, rig counts and production reports, do not lend themselves to timeliness and accuracy. Rig counts are leading indicators and production reports are lagging indicators. Consequently, determining current production is tricky, and predicting future rates even more so.
“Even if production peaks this month or next, it will not be visible in the statistics until at least July or August, and maybe later. By the time the production peak becomes visible, output will likely have been falling for several months.”
To read the article in its entirety, please go to http://www.rigzone.com/news/article.asp?hpf=1&a_id=138031&utm .
