IN PLAY: Shale Production Reporting’s New Era

By The Bakken Magazine Staff | November 11, 2013

A new oil production yardstick has replaced the old yardstick that Lynn Westfall, director of the U.S. Energy Information Administration, says just wasn’t useful anymore. The Drilling Productivity Report, developed by Westfall and his team over the past year, more accurately reflects current U.S. oil production during the month of the report’s release, and for roughly the two months after the release. The main driver behind the report is the energy production linked to U.S. shale plays. “How all of this came about was the change in oil production,” Westfall says. In the past, production was measured by drilling rig counts. Because one rig would create one well at a time and that well would provide a long, stable production curve, tracking production was as simple as tracking the rise or fall of drilling rigs in a given region. “If rig count was going up, they knew production in a certain area was going up, and if a rig count was going down, vice versa,” he says.

But, using rig count as a production assessment tool is virtually obsolete for shale plays. “Two years ago, people started noticing that production in shale plays was going up, but rig counts were going down,” Westfall says. To help trackers more accurately understand shale production, the EIA team combined several metrics to form an assessment model. The metrics include new wells per drilling rig, initial production rates on new wells, decline rates on new wells, time duration related to drilling and several other factors.

“This is very exciting, not only intellectually, but I think it is providing some very useful data to the industry,” he says. The reports focus on six major areas in the U.S., including: Bakken, Eagle Ford, Haynesville, Marcellus, Niobrara, and the Permian shale. The Bakken shale play production rates are known for being high the first month of production and steeply declining after that, the impact of which is now tracked in the EIA’s monthly production data. “One of the things that surprised us as we got into it was how many new wells you have to have just to stay even with the decline. If you looked at our data from the Bakken, for instance, and do the math, it shows that for every 100 barrels you produce from new Bakken wells, 70 barrels of that go just to replace the decline from old wells,” he says.

The numbers are not cause for alarm however. According to Westfall, the EIA’s new data modeling shows a positive trend for many shale plays, specifically the Bakken. Typically, oil production in the early life of a shale play is linked to the amount of steel in the ground, but now in the Bakken, production isn’t linked as strongly to steel in the ground. Most production increases are now a result of more productive wells. As Westfall says, production is rising because operators have a better understanding of hydraulic fracturing and horizontal drilling. “They are learning more about these new fields."

Going by the production numbers for the Bakken since 2009, Westfall is right. In October 2009, the North Dakota Department of Mineral Resources reported there were 56 active drilling rigs and daily production for the month was roughly 240,000 barrels of oil per day. In October 2010, the DMR reported 154 active drilling rigs and a daily production of nearly 344,000 barrels of oil. In October 2011, the active drilling rig count was 198 and daily production for the month reached 490,376 barrels of oil per day. As of October 2013, 182 drilling rigs are active and production on a daily basis for the month reached 911,496 barrels of oil per day. (The all-time high for drilling rigs was in May 2012, when the DMR reported 218 drilling rigs).

Overall, the main goal for the modeling is to show the combined effects of new-well production in accordance with changes in legacy production, because, as the EIA says, total new-well production is offset by the anticipated change in legacy production. Although the modeling takes into accounts several factors to show a production trend in a region, it does not take into account infrastructure constraints, bad weather or shut-ins due to economic or environmental issues. In certain cases, the EIA also had to assemble estimations for well production due to the time delay present in some state production reporting. North Dakota is very good about providing data in a timely manner, he says, but other states are as much as four to six months behind with their data. “Data that is four to six months old doesn’t really do much,” he says.

The drilling production reports will be issued every month. The first-ever report showed that two regions in the U.S. account for 75 percent of current monthly oil production growth, the Bakken and the Eagle Ford. Over the past year, the EIA reports, production in the regions increased by 700,000 barrels of oil per day.