We have been getting a lot of questions about the recent decline in oil prices and the impact to drilling activity by play. In an earlier post, we looked at the fantasy scenario of Permian oil production if rig activity went to zero. This week we decided to take a look at the Eagle Ford and what it would take in terms of a reduction in rigs to get back to 2013 activity levels – the old “put the Genie back in the bottle” exercise. *For more detailed Eagle Ford analysis, ask for a sample of the US Upstream Outlook.
As shown in the map below, there have been over 10,000 horizontal wells drilled in the BTU Analytics’ defined Eagle Ford counties since 2012.
If we look at the number of rigs active in the Eagle Ford by month, and compare that to the number of wells drilled per month, we can see the effect of drilling efficiency improvements. The number of rigs has declined 12% from over 250 in early 2012 to 221 today (right axis), while the number of wells per month has climbed 120% from 220 in early 2012 to now hitting 485 wells per month (left axis). The jump in well counts in 2014 is impressive, but considering recent oil price levels, market participants are watching producer decisions closely. See chart below.
Another way to visualize this trend is to look at Eagle Ford wells drilled per rig per month over time. What we see below is that this ratio has climbed from approximately 1.0 in early 2012 to 2.2 wells drilled per rig per month today. See chart below.
So the question is if the Eagle Ford were to return to 2013 well count levels at today’s drilling efficiencies what would have to happen to rigs? The 2013 activity level was selected as it represents a mean level before the ramp up in activity in 2014. In 2013, an average of 341 wells were drilled per month in the Eagle Ford. Using the last 6-month average for the wells/rig ratio at 1.94 would mean that Eagle Ford operators would only need to have 176 rigs operating to get back to 2013 well counts – a 19% drop or decline of 42 rigs. Only time and economics will tell.