OPEC Production Cut May Not Be Needed After All
U.S. tight oil production may fall 600,000 barrels per day by June 2015 based on reasonable projections of current rig counts.
I compared the decrease in rig counts that began in late 2014 to the rig count decrease in 2008 and 2009 following the Financial Crisis. I projected current total rig counts according to three scenarios out to June 5, 2015 shown in the chart below. I then applied those decline rates to rig counts and production in the 4 major tight oil plays: the Bakken, D-J Niobrara, Eagle Ford and Permian basin.
Comparison of rig count decrease in 2008-2009 and 2014-2015. Source: Baker Hughes
In 2008-2009, the U.S. rig count dropped from 2,031 to 876 over a period of 283 days. As of February 13, 2015, the rig count has fallen from 1,931 to 1,358 over a period of 151 days. The current rate of decrease is greater than in 2008-2009. I used the 2008-2009 rig count trend as a general guide for rate of change and duration recognizing that there are differences between the two events. Other than the rate of decrease, the most notable difference is that in 2008-2009, there was more vertical drilling than in 2014-2015 and that rig efficiency was lower in 2008-2009 as a result.
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