Comparing our start of year 2024 forecast with recorded rig activity and oil production.
In December of 2023, the TGS Well Data Team published a forecast for US oil output in 2024, with multiple scenarios dependent on rig activity. Now that we are halfway through 2024, we thought it would be a good time to revisit that forecast to see how actual production compared against our forecast and look at two potential factors that could be affecting overall output.
In Figure 1, current rig activity is displayed alongside our 2024 base, optimistic, and pessimistic cases. Although rig activity started the year correlating well with the base case, by May, rig activity has dropped by around 10 rigs in consecutive months. Compared to Figure 2, which shows US oil production alongside our range of 2024 predictions correlated to rig activity, you can see that actual output is currently slightly above the base case.
Figure 1. US Rig Activity with TGS 2024 Forecast Predictions
Figure 2. US Oil Production with TGS 2024 Forecast Predictions
The next logical question is how oil output returned stronger than our base case while rig activity has dropped below the base case. In a nationwide model like this, there are too many factors and variables to point to a single determinant factor, but a significant trend could be the shrinking inventory of drilled and uncompleted wells (DUC’s). Figure 3 shows the monthly inventory of DUC’s by basin. Over the past 3 years, the DUC inventory has been dropping precipitously. The inventory really started declining significantly in 2021, but throughout 2024 DUC’s have continued to drop. Completing these wells has allowed operators to bring additional production online without requiring additional drilling rigs. The Permian, Bakken, and Eagle Ford Basins, all dominant oil basins, have accounted for the majority of this DUC drawdown, resulting in higher oil output from fewer drilling rigs.
Figure 3. EIA DUC Inventory by Basin
Another key factor to be considered is a marked shift in production profiles for wells in the Permian, the leading basin for US oil output. As Figure 4 shows, wells drilled in the Permian Basin last year are producing over 2.5 times as much oil in the first month of production as Permian wells drilled in 2020, but they are also declining at nearly 2.5 times the rate. This results in a much quicker production response to drilling activity, but also leads to shorter lifespans for many of these wells.
Figure 4. Permian and Bakken Well Profile Comparison by Vintage
Both of these factors help explain the better-than-expected US oil output from lower than expected rig activity, but both of these factors should also serve as a warning. There are only so many drilled and uncompleted wells available, and a previous TGS analysis showed a negative relationship between the amount of time between drilling and completion, and the normalized performance for that well. Essentially, the longer a well stays uncompleted, the lower returns should be expected. Similarly, recent wells being drilled yielding in higher initial rates and decline rates provide quicker returns on capital, but do not result in longer term annuity-like performance. Both of these factors could hinder the ability for US shale to be a significant global swing producer without a heavy reliance on increased drilling activity.
For more information on TGS Well Data Analytics or to schedule a demo, contact us at WDPSales@tgs.com.
