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Why Niobrara January Crude Oil Production Fell 8% in a Year

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Niobrara crude oil production

The EIA (U.S. Energy Information Administration) released its Drilling Productivity Report on February 8, 2016. The report estimates that the Niobrara Shale produced 417,730 bpd (barrels per day) of crude oil in January 2016. This was 2.7% less than production in December 2015 and 8% less than production in January 2015. Month-over-month, the Niobrara Shale’s January 2016 crude oil production number represents the fifth consecutive fall.

The Niobrara Shale oil production rose from 123,440 bpd in January 2008 to ~417,730 bpd in January 2016. This is a rise of 238% in eight years.

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Rigs and monthly additions from the average rig

The number of rigs working at the Niobrara Shale fell by four to 26 in January 2016 compared to the previous month. In January 2015, there were 95 rigs in the region.

The EIA calculates that the Niobrara Shale crude oil production per rig in January 2016 increased 49% from January 2015. The production growth per rig has risen by 20x in the past eight years. The Niobrara Shale in Colorado and Wyoming was one of the fastest-growing oil-producing regions in the United States before the recent fall.

What this means for oilfield services companies

The lower rig count and energy production in the past year has reduced oilfield services companies’ revenues and profits. Rig equipment makers and rig-related technology service providers include Schlumberger (SLB), C&J Energy Services (CJES), Superior Energy Services (SPN), and Core Laboratories (CLB). Oilfield services companies may continue to lose revenues and profits if drilling activity in the Niobrara Shale falls. Schlumberger makes up 0.53% of the SPDR S&P 500 ETF (SPY). For investors who would like exposure to the energy sector, energy makes up 6.6% of SPY.

In the next part of this series, we’ll take a look at natural gas production at the Marcellus Shale.

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