In this age of market volatility people (and companies and institutions and media and banks and everyone else) are clamoring for better methods to predict potential ROI on their investments. And in the oil & gas trade this more thorough measurement is sadly lagging behind many other industries.What do we know when? The Energy Information Agency have just come out with a new system for measuring actual production and productivity, and clever and thorough though it may be it, it remains a backwards-view of the industry, so we still need a method that allows a glimpse into the future.
Even Baker Hughes’ future-bride Halliburton has recently expressed concern with the rig count as a proxy for production growth on their recent investor call.
What is the Drillinginfo Index? The DI Index is a measure of new production capacity based on rig activity combined with local geological productivity and current technological efficiency. It is designed to give a more robust indication of what drilling activity means, how dollars are being spent, and what that means for future onshore US supply.
Let’s dig in on the rig count a little bit. In no way are we suggesting that it has no relation to future productivity, only that it’s merely part of the picture.
What’s different about Drillinginfo’s rig count?
The most obvious difference is that 80% of US onshore rigs are equipped with GPS units that only get marked as active when they are matched up with an active permit on a drilling site. The other 20% of US rigs are monitored the old fashioned way – phone calls, emails, and conversations with the drilling operators. Historically our count has tracked fairly closely to the Baker Hughes count.
Of course the devil is in the details. Our rig count appears to be slightly more comprehensive – particularly in the Gulf of Mexico, areas outside of core plays, and among smaller regional drillers.
We also break our rig data down into many different categories. Here are US Rigs broken down by Play, State, Operator, Driller, and Trajectory:
And there is so much more: you can monitor movement vectors, rig class (ie horsepower), county activity, etc.
One key point in the above graphic: the slight bump in rig count that was reported in the press a few weeks ago can be attributed to vertical rigs – the yellow area in the lower right chart. Since vertical rigs usually come on line at about 10% of a modern horizontal’s production, we see one of the reasons why rig count alone is no longer sufficient for planning your business.
Current wells being brought online in the Eagle Ford are 40% more productive. Why is this?
Since the low-price oil game is all about cash flow, drillers are focusing on the honey-spots. A recent well activity snapshot of the Bakken shows less activity, to be certain, but also more focused activity. So a fair amount of that increased productivity is due to the high-grade rock that is being targeted.
Additionally, drillers are applying recent learnings from their activities back into their well plans. For example, check out these analyses by our CEO Allen Gilmer on optimizing well spacing, and right-sizing proppant levels.
We all know that service contracts have been renegotiated very favorably for the drillers with 30% reduction in costs being the figure most readily bandied about. Recent examination of Pioneer’s activity in the Permian Basin and the Eagle Ford seems to corroborate that figure.
Drilled but uncompleted wells (DUCs) are an innovative reaction to the softening oil market. In this scenario, operators continue to drill wells, but only take the time and expense to complete enough wells to keep their cash flow positive and maintain held-by-production status on their leases. At a later date, when the price of oil goes up, or some other market force is brought to bear, they can hire a crew for completion and bring the well’s production online. It is a sort of method of storing oil in place, and ultimately should bring the US even more power as a swing producer.
The big problem with DUCs is that it further obscures the actual amount of production that may come online as a result of drilling activity, or not really the amount so much as when the amount will come online. There are many smart people at work on the full potential impact of DUCs, and many competing methods for determining the scope, but no-one knows for sure the correct number yet. Somewhere between oilfield services giants (who provide the fracking crews and presumably have a better grasp of which wells remain uncompleted) like Halliburton and Schlumberger, and storage sensor data company Genscape (with the internet of things) lies the truth.
The Drillinginfo Index
The DI Index of New Production Capacity is designed to track US Oil & Gas activity by identifying newly drilled wells and estimating their peak production several months before actual production data is available through state agencies. Rather than a general view of the state, county, or basin activity, in the DI Index rigs are paired with permitted locations, nearby productivity is assessed, and potential capacity is assigned to the wells drilled. This is the measurement you need. The Index is also presented with a monthly perspective designed to help you better understand the analysis, as well as a portal to deeper reports, analyses and maps designed to help you make better, faster decisions.
What do you think? Leave a comment below.
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