Why Is Permian Basin Shale Oil Production Growing so Sluggishly?


Apr. 13 2016, Published 12:18 p.m. ET

Permian Basin shale oil production

On April 11, 2016, the EIA (US 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 March 2016. This was 0.6% higher than production one month previously and 8% higher than production in March 2015. The Permian Basin’s shale crude oil production rose month-over-month for eight months in a row.

Why Is Permian Basin Shale Oil Production Growing so Sluggishly?

Permian Basin shale oil production rose from 872,500 bpd (barrels per day) in March 2008 to 2.0 MMbpd in March 2016. That’s a rise of 133% in eight years.

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Permian Basin rigs and monthly additions

In March 2016, the number of rigs working in the Permian Basin was 152, down from 171 in February 2016. There were 290 active rigs in the Permian Basin in March 2015. The number of active rigs in the United States has fallen significantly over the past 16 months.

The EIA calculates that the average Permian Basin rig added production of 449 bpd in March 2016, a 55% rise since March 2015. In the past eight years, the additional production per rig has risen by ~5.7x.

What’s this mean for oilfield services companies?

The rising Permian Basin productivity in 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 can eventually fall as marginalized wells start replacing the 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 out of older wells. Schlumberger forms 7.0% of the ProShares Ultra Oil & Gas ETF (DIG).

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


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