Is Pessimism Over Oil Well Productivity in West Texas Premature?

Is Pessimism Over Oil Well Productivity in West Texas Premature?

You may recall a recent post titled Steady as it Goes for Permian Basin Rig Counts where we shared April 2019 oil rig count data as supplied by Baker Hughes. We also asked the question, “Why has there been a slowdown in oil drilling?” and countered it was likely due to spending cuts from independent exploration and production companies. At the time, it appeared that crude prices would continue to go down. However, the latest rig-count report shows the number of oil rigs in the Permian Basin is holding mostly steady.

Let’s take a look at the most recent Baker Hughes report from August:

The U.S. Rig Count is down four from the last count performed in July of this year and down 104 from the count performed in August of last year. According to recent reports from Baker Hughes, Midland County, Texas, gained two rigs and the Permian Basin lost one. Texas is up one rig totaling 455.

See chart below for additional details.

Area Last Count (2019) Count Change from Prior Count Date of Prior Count (2019) Change from Last Year Date of Last Year’s Count (2018)
U.S. August 2 942 -4 July 26 -102 August 3
Canada August 2 137 +10 July 26 -86 August 3
International June 1,138 +12 May +179 June

Despite somewhat favorable results, there is still some pessimism regarding well productivity in the Permian Basin. Many firms fear the state of oil and gas well performance in West Texas due to the depletion of core inventory, growth in the share of child wells and well-spacing challenges. However, we discovered an article featured in Oil & Gas Journal (OGJ) that may shed some light on why that pessimism may be premature. In it, OGJ reports that Rystad Energy is holding firm on their outlook for the basin. In fact, Rystad’s Head of Shale Research, Artem Abramov, was quoted as saying, “We conclude that the average new production per well in the basin matches the all-time highs seen in early 2019 despite depletion concerns.” View the entire article here.

One potential downside associated with the increase of crude oil production in the Permian Basin is the likely increase in natural gas. According to World Oil, current constraints on natural gas pipelines may reduce oil drilling in areas that have heavy concentrations of natural gas. That said, Pipeline & Gas Journal reports that pipeline operator Magellan Midstream Partners LP expects new pipelines to be in the works to help improve the crude oil bottleneck in the Permian Basin.

Share your thoughts on today’s oil and gas news. How will it impact your business?

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