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Permian Shale Oil Production Up Again in December: Who Benefited?

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Jan. 15 2016, Updated 2:25 p.m. ET

Permian Basin oil production

On January 11, 2016, the EIA (U.S. Energy Information Administration) released its latest Drilling Productivity Report. The EIA estimates that the Permian Basin’s crude oil production amounted to ~2.0 MMbpd (million barrels per day) in December 2015. This is 0.7% higher than November 2015’s production total. However, it’s a 12% rise over production in December 2014. In December 2015, Permian Basin crude oil production rose month-over-month for the 11th time in a row.

Permian Basin oil production rose from 862,860 bpd (barrels per day) in December 2007 to 2.0 MMbpd in December 2015. That’s a rise of 134% in eight years.

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Rigs in the Permian Basin

In December 2015, there were 212 active rigs working in the Permian Basin, down from 227 in November 2015. There were 548 active rigs in the Permian Basin in December 2014, the second highest rig count since 2007. The number of active rigs in the United States has fallen significantly in the last year.

Monthly additions from one average rig

The EIA calculates that the average Permian Basin rig added production of 412 bpd in December 2015, an 80% rise since December 2014. In the past eight years, the additional production per rig rose ~6.0x.

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What does this mean for OFS companies?

If the Permian Basin’s drilling productivity rises, oilfield services and equipment (or OFS) providers will also benefit. Higher production increases revenue for OFS companies, as upstream companies increase exploration and production activity.

The rising trend over the past year also has a positive impact on drill equipment makers such as Schlumberger (SLB), National Oilwell Varco (NOV), Nabors Industries (NBR), and Halliburton (HAL). Nabors Industries forms 3.2% of the VanEck Vectors Oil Services ETF (OIH). Read more about Halliburton on Market Realist’s NBR Continues to Underperform in the Oilfield Services Industry.

Permian Basin

The horizontal drilling and hydraulic fracturing process has unlocked huge oil reserves in the Permian Basin. The most productive Permian formations are the Spraberry, Wolfcamp, and Bone Spring formations.

The Bakken is one of the most prolific crude oil shales in the United States. In the next part of this series, we’ll see why.

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