Column: US oil drilling set to accelerate in 2022: Kemp


Oil rigs are pictured in the Kern River oilfield in Bakersfield, Calif., November 9, 2014. REUTERS / Jonathan Alcorn / File Photo

  • John Kemp is a market analyst at Reuters. The opinions expressed are his

LONDON, Nov. 17 (Reuters) – U.S. shale producers have added additional drilling rigs much slower than during the recoveries following the last two oil price cuts, limiting production and helping push prices up premises at their highest level in seven years.

But the number of active rigs and total production are expected to increase next year as the recovery matures and producers roll back some of the divestment measures they used to cut costs in 2020/21.

The number of active oil rigs was only 454 last week, according to oil services company Baker Hughes, up from 683 just before the arrival of the first wave of the pandemic in March 2020.

The number of rigs is roughly half of what it was the last time prices were close to the same level in 2018, a sign of the pressure shale companies are under from investors to hold onto their stocks. liquidity and OPEC + so as not to encroach on market share.

Since the low point of the drilling cycle in August 2020, U.S. producers have added 282 additional rigs over 65 weeks (an average of 4.3 per week).

At the same time, after the previous two collapses of 2014-2016 and 2008-2009, they had added 443 rigs (6.8 per week) and 486 rigs (7.5 per week).

U.S. oil production has recovered to around 11.5 million barrels per day (bpd), from a post-pandemic low of 10.7 million, but still well below the pre-pandemic record of 13.0 million. bpj.

However, in response to the crisis, producers limited their spending and saved money by completing previously drilled but incomplete (DUC) wells instead of drilling new ones.

Since August 2020, U.S. companies have drilled just under 7,000 new oil and gas wells, but have completed nearly 10,800 in total and brought them into production.

As a result, the stock of drilled but unfinished wells fell to just 5,100, from a peak of nearly 8,900 in August 2020 (https://tmsnrt.rs/3DpIRHG).

The number of DUCs is approaching multi-year lows. Like any form of inventory liquidation, it is ultimately unsustainable. American producers will have to sharply increase new drilling or face a drop in production.

Oil production is a running out of business: producers must constantly invest in exploring and developing new sites, drilling new wells to compensate for production declines from older wells.

For every million barrels per day of current production, there are 41 rigs drilling replacement wells, down from just 17 in August 2020, but up from 52 just before the pandemic.

During the crisis, producers increased their efficiency by retreating to focus only on the most prolific regions, formations and well sites, using only the most powerful and modern rigs.

A fallback strategy has inevitable limits. Past recoveries indicate that producers will need to add additional platforms, including older and less powerful platforms, as well as return to certain regions, formations and secondary sites.

Drilling rates are expected to rise next year as the shale industry reaches the end of the inventory run-off cycle and is forced to increase investment to maintain production.

Associated columns:

– The depletion of oil stocks in the United States leaves the market vulnerable to shocks (Reuters, November 4) read more

– US oil futures rally fueled by Cushing stock draws (Reuters, October 28) read more

– OPEC + is comfortable with the upward trend in prices (Reuters, October 26) read more

Editing by Kirsten Donovan

Our Standards: The Thomson Reuters Trust Principles.

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