Drilling Treadmill In Action – US Shale Oil update
In our previous article (Behind The Oil & Gas Abundance Narrative: The True Status of Crude Oil) we argued that one the biggest problems faced by the recent US shale oil boom is the horrendous decline rate of tight or shale oil fields. We described a phenomenon known as the ‘drilling treadmill’ as:
Once on a drilling treadmill, it is like trying to go up a down escalator. It becomes harder and harder to maintain the current rate of production, let alone expanding it.
And we illustrated this concept with a few in-field data snapshots taken from Bakken and Eagle Ford, two of the fields which account for the bulk of the US tight oil production.
A few months have passed since those snapshots. With the latest data just released by the US Energy Information Agency (EIA), let’s see how these two fields are doing.
First, on the positive side, overall new production continues to increase across all tight oil fields. This is probably what the mainstream media have based their ‘tight oil revolution’ and ‘oil abundance’ memes on.
Another piece of positive news: the amount of oil brought into production per rig, rig productivity in other words, has also increased, albeit slightly, across all fields. Technology at work.
Now for the not too good news. Not only is the decline in oil production in existing (legacy) fields pretty much keeping pace with the increase from new production, it looks like it is gaining ground, making any marginal increase progressively more difficult.
Let’s double click on Eagle Ford and see how it has been performing since last reported. Below is what Eagle Ford looks like in July. The same charts from the previous article are also put here to provide a better historical context.
Here’s the snapshot for July.
Production continues to increase (+140 thousand barrels per day, bd) for the month of July, but in the same month legacy production decline (-115 thousand bd) is also keeping pace. Worse still, the decline is now 82% of the production increase.
For Bakken, the charts below paint a pretty similar picture. Against an increase of +90 thousand bd in new production, legacy production decreased by -73 thousand bd. Legacy production decline now eats up 81% of new production.
Translation: as you increase production and your base (legacy production base) gets bigger, the high decline rate will dictate that your legacy decline will also be a large number. You need to drill like crazy in order to bring on new production just to offset legacy production decline.
And that’s a real life example of a drill treadmill.
Unless you drastically improve rig productivity (incremental improvements, yes; drastic improvements, not likely) and keep multiplying your rig count (not likely either due to cost and running out of spots to drill), at some point in the not too distant future, new production, constrained by the hard limits of the physical world, will be overrun by the ballooning legacy decline.
Such an outcome is, unfortunately, inevitable, as it is hard wired by the law of exponential growth (decline in this case).