New U.S. Oil Production: Key Takeaways from the DI Index Launch

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This morning, Drillinginfo hosted a panel discussion at the Four Seasons in Houston to mark the release of the new Drillinginfo Index — the oil and gas industry’s most timely indicator of new U.S. oil and gas production trends.

New U.S. Oil Production: Key Takeaways from the DI Index Launch
Panel (L-R): Ross Ramsey; Lt. General (Ret.) John R. Vines; Ralph Alexander; Kenneth B. Medlock, III; Allen L. Gilmer

An exclusive breakfast event for industry elite

The panel was moderated by Ross Ramsey, executive editor and co-founder of The Texas Tribune, and included:

Ralph Alexander– Managing Director of Riverstone. For nearly 25 years, Mr. Alexander served in various positions with subsidiaries and affiliates of BP plc, one of the world’s largest energy firms.

Lieutenant General (Ret.) John R. Vines– Advises and mentors senior executives at numerous multi-national companies on leadership, strategy, and team building.

Kenneth B. Medlock– James A. Baker, III, and Susan G. Baker Fellow in Energy and Resource Economics at Rice University’s Baker Institute for Public Policy and the senior director of the Center for Energy Studies

Allen Gilmer– Founder and CEO of Drillinginfo, Inc.

The discussion ranged from geopolitical pressures on the oil and gas market to the financing challenges of $50 oil, and included comments about the organizational challenges in leadership, talent, technology, and IT facing the industry. The 60 E&P executives, analysts, media, and policy makers in attendance kept the panel lively with their own questions about the future of the industry and how the Drillinginfo Index can help make better decisions, faster.

“I WAS IN CALIFORNIA TRYING TO EXPLAIN THAT THIS IS NOT ‘THE BEVERLY HILLBILLIES.’ YOU DON’T JUST SHOOT SOMETHING AND OIL COMES OUT. THE TECHNOLOGY CONTENT WITHIN THE OIL AND GAS INDUSTRY IS SECOND ONLY TO COMPUTING.” – Ralph Alexander

About the Drillinginfo Index

New U.S. Oil Production: Key Takeaways from the DI Index LaunchThe Drillinginfo Index is released several months before production data becomes available through public sources. Far beyond a simple rig count, the Drillinginfo Index uses actual drilling locations along with permit and production data to track industry activity.

A critical tool for tracking rig activity, uncovering changes in drilling and production, and how the determined trends could affect various U.S. markets, the Drillinginfo Index empowers investors, analysts, business owners, operators, policy makers, state and county authorities with the most up-to-date insights about U.S. E&P new drilling operations – greatly enhancing short-term forecasting models.

Proprietary Methodology

By utilizing our proprietary rigs, permits, and production datasets, Drillinginfo is able to uncover trends in well activity, identify newly drilled wells, and estimate their peak production to closely predict changes in new production capacity at the national, county, and operator level.

The combined peak production rate of the newly drilled wells is termed “new production capacity,” and provides a more current summary of the domestic oil and gas landscape than traditional, unintegrated industry metrics.

New U.S. Oil Production: Key Takeaways from the DI Index Launch

Key Takeaways from the panel

The panel covered a variety of topics, but focused on how the Drillinginfo Index can help monitor a volatile geopolitical climate and commodity speculation, indicate changes in the oil and gas markets, help companies determine the right leadership, and inform management decisions.

“COSTS ARE COMING DOWN. MARGIN HAS LEAKED THROUGHOUT THE SYSTEM, AND NOW IT WILL COMPRESS. YOU’RE SEEING VERY RAPID, THE BEST I’VE SEEN, COSTS COME DOWN. YOU’RE SEEING THE FOCUS ON THE BEST AREAS TO GO AHEAD AND MAKE SURE OUR CAPITAL IS PRODUCTIVE, AND I THINK TOOLS LIKE THIS MAKE IT EVEN EASIER.” – Ralph Alexander

The Drillinginfo Index is the indicator we need for the current geopolitical and commodity climate.

“COMMERCE AND WARFARE HAVE MORE IN COMMON THAN THEY HAVE APART. ONE OF THE THINGS THEY HAVE IN COMMON IS THAT THEY’RE BOTH LEARNING COMPETITIONS AND WHOEVER LEARNS THE QUICKEST AND ADAPTS THE QUICKEST, WINS.” – Lt. General (Ret.) John Vines

  • Oil has played a role in geopolitics at least since Winston Churchill convinced the British Navy to switch from coal to oil fueled vessels.
  • We have certainly seen volatility in the global crude oil price affect geopolitics since the 1973 oil crisis.
  • Anything that brings greater stability to crude oil pricing will likely reduce geopolitical instability and hopefully reduce the likelihood of lives lost.
  • The sheer size of the market for financial derivative products based on physical crude oil invites not only hedging by producers and consumers but also speculation from investors who are in effect betting on certain events. The DI Index should help these markets work better.
  • There is often volatility that seems unrelated to what is going on in the physical markets. The natural gas market, for example, has been manipulated by speculators to the detriment of consumers. Enron comes to mind. Tying specific drilling rig activity to a predictive analysis will help market observers determine whether price movements are based on physical fundamentals.

The Drillinginfo Index is the indicator we need for oil and gas markets in the age of big data & analytics

“AT DRILLINGINFO, WE’VE ALWAYS FELT THAT TRANSPARENCY IS THE BEST ANSWER. THIS IS AN INDUSTRY THAT PROBABLY WASN’T THE MOST TRANSPARENT 20 YEARS AGO, AND PEOPLE MADE A LOT OF MONEY OFF THE LACK OF TRANSPARENCY. NOW THIS IS AN INDUSTRY THAT’S MOVING MORE AND MORE INTO THE WORLD OF TRANSPARENCY AND UNDERSTANDING WHERE THINGS ARE.” – Allen Gilmer

  • A lot of the capital invested in business plans predicated on $100 oil may be redirected to companies that are better suited to the current environment. Some capital may be moved out of the oil & gas space into a different vertical. But a lot of new money is likely looking for assets now based on the long-term demand growth projected by most analysts.
  • Money is made in the oil business when prices fall; profits are realized when prices rise. Historically the industry has seen a lot of novice investors jump into the business when the price is high who then leave the business when the price drops.
  • Low cost capital may be gone for a while. Higher cost capital is still very available.
  • In addition to the normal financial criteria, efficiency and productivity of the company’s exploration & production is the key differentiator.
  • One company may do well in one play but not have exposure to other plays with greater upside potential. On the other hand a company with exposure to many plays that hasn’t done particularly well in any of them is not likely to show much promise.

The Drillinginfo Index is the indicator we need for determining the right leadership and management decisions

“THE COMMERCIAL IMPLICATIONS FOR WHAT’S BEING ROLLED OUT IN THIS INDEX ARE FAIRLY SELF EVIDENT. FROM A POLICY PERSPECTIVE, HAVING INFORMATION LIKE THIS, THAT’S MORE REAL TIME, CAN ACTUALLY SERVE AND BETTER INFORM POLICY AROUND WATER RESOURCES, TAX REVENUES, PARTICULARLY IN LOCAL MUNICIPALITIES. LOCAL GOVERNMENTS ARE REALLY BECOMING HEAVILY DEPENDENT ON THOSE TAX FLOWS TO SUPPORT DAY-TO-DAY OPERATIONS. A BETTER INDICATOR OF WHAT THOSE WILL BE IN REAL TIME CAN ACTUALLY HELP POLICY MAKERS PLAN BETTER.” -Ken Medlock

  • The industry will continue to need new workers for the foreseeable future. The current lay-offs are likely temporary and will reverse as the oil price stabilizes and begins to increase.
  • New workers will need new tools. The future is Software as a Service. Stand-alone, monolithic software that isn’t interoperable with all enterprise data and solutions will not be embraced by the next generation.
  • C-suite leaders need dashboards that give objective, real-time analysis of what is happening in the enterprise versus peers.
  • The market has access to more data, better analyzed than ever before, so leadership needs to embrace descriptive, predictive, and prescriptive analysis to know how the enterprise is doing and how it can improve to become best in class.

Conclusion

Accurately predicting new U.S. oil production based on a deeper understanding and analysis of oilfield activity will help enhance the U.S.’s role in delivering stability to the global oil and gas market, will curb some of the worry involved in domestic E&P investment, and will help ensure a greater global quality of life.

Your Turn

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Eric Roach

Eric Roach is the editor of Drillinginfo's blog, which was selected as the Top Oil & Gas Industry Blog based on visibility, engagement and relevance. He also prepares a weekly newsletter of top industry news for blog subscribers, and would be grateful if you would subscribe and tell your friends. (There's a box on the upper right of the page where you can subscribe).