Well Productivity Driving U.S. Oil Production Gains

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Written by Daniel Graeber for Industrial Info Resources (Sugar Land, Texas)--Increased well productivity, rather than increased drilling, is helping to secure the United States as the top crude oil producer for the seventh consecutive year, the U.S. Energy Department found.

U.S. crude oil production averaged 8.6 million barrels per day (BBL/d) in 2014. During the prior decade, analysts delved heavily into the rig counts supplied weekly by upstream services firm Baker Hughes Company (NASDAQ:BKR) (Houston, Texas) to identify future trends. This year, total crude oil production is expected to average 13.3 million BBL/d, and the Energy Information Administration (EIA), the data arm of the Energy Department, finds rig counts no longer tell the entire story.

"Traditionally, the number of active oil-directed rigs is a leading indicator of future crude oil production because more active rigs can drill more new wells," EIA found. "Recently, U.S. crude oil production has increased because of technological advancements and efficiency gains despite a 69% decrease in the number of active rigs since 2014."

Looking at second quarter results from 34 upstream-focused energy companies, the EIA found that increased well productivity, rather than the number of rigs, has helped to lower production costs on a per-barrel basis and free up cash flow all while supporting output.

"Increasing well productivity, primarily due to advances in horizontal drilling and hydraulic fracturing technologies, has been a key driver in U.S. crude oil production growth, enabling U.S. producers to extract more crude oil from new wells drilled while maintaining production volumes from legacy wells drilled previously," a daily briefing published Wednesday by the EIA stated.

The EIA pointed to two data sets--new well production, defined as oil extracted during the first 12 months of production, and legacy production, the amount of oil that's been extracted after the initial 12 months, to assess trends.

Since 2021, EIA data show that legacy production has remained stable, while new-well production has increased. Efficiencies emerged in the form of multi-lateral wells. Those laterals are extending longer, reaching nearly three miles in the horizontal direction, and at increasingly lower costs.

EIA found that in the Permian, which at 6.3 million BBL/d accounts for about 60% of total U.S. output, production from newly completed wells increased over the last two years, while the number of active drilling rigs declined.

"Among the publicly traded E&P [exploration and production] companies that we looked at, recent production and spending data indicate these companies are increasing crude oil production while continuing to control costs," the EIA added.

On earnings, lower commodity prices have taken on a toll on energy companies. Crude oil prices have been suppressed for much of the year, and U.S. natural gas prices hit an all-time low in November.

In response, Chevron Corporation (NYSE:CVX) (San Ramon, California) this week announced it was planning capital expenditures of around $17 billion next year, a $2 billion reduction from this year's levels. Exxon Mobil Corporation (NYSE:XOM) (Spring, Texas), however, said it would spend $140 billion through 2030 on operations in the Permian.

The EIA expects total U.S. crude oil production to increase 2% from this year's levels to average 13.5 million BBL/d next year. Permian output is on pace to grow by 3% to average 6.5 million BBL/d.

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