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Has Permian Shale Oil Production Growth Come to a Halt?

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Permian shale oil production

On March 7, 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 February 2016.

This was nearly unchanged from January 2016’s production. However, it was 12% higher than production in February 2015. Before February 2016, the Permian Basin’s shale crude oil production rose month-over-month eight times in a row.

Permian Basin shale oil production rose from 871,000 bpd (barrels per day) in February 2008 to 2.0 MMbpd in February 2016. That’s a rise of 133% in eight years.

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Rigs in the Permian Basin

In February 2016, the number of rigs working in the Permian Basin was 171, down from 199 in January 2016. There were 375 active rigs in the Permian Basin in February 2015. The number of active rigs in the United States has fallen significantly over the past 15 months.

Monthly additions from the average rig

The EIA calculates that the average Permian Basin rig added production of 432 bpd in February 2016, a 64% rise since February 2015. In the past eight years, the additional production per rig has risen by ~5.7x.

What does this mean for oilfield services companies?

The rising Permian Basin productivity over the past year had a positive impact on drill equipment makers such as Schlumberger (SLB), National Oilwell Varco (NOV), Forum Energy Technologies (FET), and Halliburton (HAL). However, Permian Basin crude oil production and drilling productivity could eventually fall as marginalized wells start replacing declining wells to maintain production.

Permian producers have so far resisted any steep production fall either by curbing the initial output rate or by producing additional barrels from older wells. Schlumberger forms 6.6% of the ProShares Ultra Oil & Gas ETF (DIG).

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