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Did Permian Shale Crude Oil Production Drop in June?

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Permian Basin shale crude oil production

On July 18, 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 June 2016.

This was marginally down from production in May 2016. However, it was 5% higher than production in June 2015. The Permian Basin’s shale crude oil production declined on four occasions in the past 12 months.

Permian Basin shale oil production rose from 857,200 bpd (barrels per day) in June 2008 to ~2.0 MMbpd in June 2016. That’s a rise of 132% in eight years.

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Rigs in the Permian Basin

In June 2016, the number of rigs working in the Permian Basin was 145, up from 137 in May 2016. There were 232 active rigs in the Permian Basin in June 2015. The number of active rigs in the United States has fallen significantly over the past 17 months.

Monthly additions from the average rig

The EIA calculates that the average Permian Basin rig added production of 491 bpd in June 2016, a 30% rise since June 2015. In the past eight years, additional production per rig has risen ~5.8x.

What this means 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), Core Laboratories (CLB), and Baker Hughes (BHI). However, Permian Basin crude oil production and drilling productivity can eventually fall when 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 0.6% of the iShares Core S&P 500 ETF (IVV). For investors who would like exposure to the energy sector, energy makes up 7.2% of IVV.

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 see why.

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