Does Drilling Productivity Affect the OFS Industry’s Performance?
Why is drilling efficiency important?
Since crude oil’s price fall, many upstream producers have been facing the challenges associated with decreasing the costs of energy extraction activities and securing desired rates of production. These actions have demanded productivity improvements from oilfield equipment and service (OFS) providers.
Higher drilling efficiency or productivity means higher production per drilling rig. With higher drilling efficiency, OFS companies can extract hydrocarbons at lower costs. They can also help upstream companies to control energy production costs and better explore new and existing markets with newly developed technologies.
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Productivity growth in key US shales
The Permian Basin is the largest unconventional resource basin in the United States. The EIA (U.S. Energy Information Administration) calculates that the average Permian Basin rig added production of 597 bpd (barrels per day) in October 2016, a 39% rise since October 2015. In the past eight years, the additional production per rig has risen ~6.7x.
The Eagle Ford Shale, which accounted for 23% of total key shale crude oil production in October 2016, has seen a 37x rise in additional production in the past eight years. On average, additional production per rig has witnessed 13.5x growth in the past eight years.
How did higher drilling productivity help in key US shales?
Rising productivity at key shales in recent years has had a positive impact on drill equipment makers such as Core Laboratories (CLB), Superior Energy Services (SPN), Weatherford International (WFT), and Schlumberger (SLB). Many shale producers have so far resisted any steep production falls, either by curbing initial output rates or by producing additional barrels out of older wells.
Schlumberger forms 0.6% of the iShares Core S&P 500 ETF (IVV). For investors who would like exposure to the energy sector, energy makes up 7.1% of IVV.
In the following two articles, we’ll discuss well cost reductions, bankruptcy, and mergers and acquisitions—the three prominent trends in the OFS industry lately.