Wednesday, February 7th, 2018

Is Rig Count Still a Viable Metric in Measuring Crude Production?

Is Rig Count Still a Viable Metric for Measuring Domestic Crude Production?Since 1944, the Baker Hughes Rig Count has tracked and published the number of drilling rigs active in oil and gas basins throughout the United States. Energy sector investors and oil companies alike have come to regard this monthly report as an important metric in gauging the state of domestic oil and natural gas production. Throughout the years, knowing the rig count has added a measure of surety and confidence to what is sometimes a volatile market.

In the past, more rigs mean more production and activity. Over the past several months, however, certain findings show that things might be changing in this regard.

Oil Is Up, But the Rig Count Doesn’t Account for It All

The idea of the rig count losing its long-standing role as a primary metric in gauging the state of the oil industry may come as a shock to many. This is especially true considering the rig count has seen a lot of growth over the past year, which indicates a healthy and growing oil and gas market.

This issue is when you delve into the details. If you do, you will see that while, yes, oil production is up and rigs counts are up, there’s more production now than the rig count can account for.

Rig Counts are Missing New Information

Rig counts are just that––a fixed number in time. Now, with ever-changing advancements in technology, more factors are now in play. Producers, specifically those drilling in shale basins, are innovating and doing far more with less. The wells drilled today are not the same as the wells of yesterday. Domestic production is occurring faster, more efficiently, and with fewer resources––all factors contributing to the US becoming a net exporter of natural gas in 2018 and the potential to be a net exporter of oil within the next 10 years.

Consider:

  • The industry has shifted from reliance on vertical drilling to horizontal drilling, which delivers exponentially more oil production potential per wellbore.
  • More efficient horizontal drilling and more intense, multi-stage fracking are further delivering more barrels of oil as technology is continually refined.
  • Operators in shale basins are moving towards pad drilling, drilling multiple wellbores from a single rig. Over 85% of the wells drilled in the Bakken and 90% of wells in the DJ-Niobrara are on multi-well pads. This works to reduce the number of rigs in action while greatly accelerating production potential.

Because of these increased efficiencies, updated drilling practices, and more, a simply rig count is no longer enough to gauge market specifics. However, rig counts are not obsolete. They can still represent a gauge of the confidence of the market.

What to Watch if Not the Rig Counts

Randall KenworthyRig count metrics becoming less important is not as large a problem as it may seem. The modern age is a data-rich one, with more metrics than any analyst could dream of.

Instead of just the rig count, analysts and investors are looking at a number of other factors. These can include lateral lengths, the frac stages per well, fracking equipment purchases, oilfield hiring reports, and a host of other metrics to paint a better picture of the market.

The oil and gas industry is in a state of growth and change. With those things will come new and different ways of gauging it. Investors and those in the field would do well to keep an eye on new technology and avenues of gauging the viability of the market.

by Randall Kenworthy