Breakthroughs in drilling technology and higher flows from unconventional gas are driving production increases even though the number of active rigs fell 50% over the past year
EVERGREEN, CO (October 30, 2009) – A new Market Alert from BENTEK Energy examines a major development in natural gas markets resulting from the disconnection between future natural gas production and the number of active drilling rigs in the field. For decades, the active drilling rig count has served as the benchmark to forecast future natural gas supply. In the past, when the rig count increased, production growth was soon to follow. When the rig count fell, production eventually declined.
“The historic correlation between rig count and gas production rates began to fail midway through 2008 and completely broke down in 2009,” noted BENTEK Managing Director Rusty Braziel. “We saw the rig count fall more than half in less than six months – from a peak of 2,569 rigs in October 2008 to a low of 1,146 rigs in May 2009, as measured by RigData. Yet natural gas production has been up nearly 4%, or 2.1 billion cubic feet per day in 2009.”
This divergence has perplexed natural gas industry observers because many of the underlying causes have been difficult to track. The BENTEK Market Alert highlights the impact from significant improvements in horizontal drilling and well-completion technologies over the past few years. The time it takes to spud, drill and complete a well is significantly shorter today compared to only two years ago. At the same time, the industry has also achieved initial high rates of production in the development of unconventional shale gas resources, resulting in huge productivity improvements.
“These efficiency gains have enabled the industry to do much more with far less, rendering the historic rig count correlation virtually meaningless in today’s environment,” noted Tom Sherman, senior energy analyst at BENTEK.
To help explain these new industry dynamics, BENTEK Energy developed a new drilling index called the BENTEK Rig Productivity Index (BPI). The BPI takes into account not only the current rig count, but also the impact of technological advances and efficiency gains per rig on current and future production, in order to arrive at a more accurate predictor of future production. The BPI shows an “effective rig count” – a much higher number than the actual rigs working because today’s rigs are far more productive than the rig count benchmark of January 2005 BENTEK is using to determine its BPI.
As of October 28, 2009, BENTEK announced a BPI of 2,764. Even though the actual rig count on that day was 1,356, the productivity of those rigs was substantially greater than what the same amount of rigs would have produced in January 2005. To show the relative change in recent drilling efficiency based on January 2005 production data, an addition of 1,408 “equivalent January 2005” rigs were added to the current active rig count to get the BPI. “Another way to understand the BPI is that 1,356 rigs are producing today the way 2,764 rigs would have produced in 2005,” noted Mr. Sherman. “To make the BPI more relevant to total production, we include both gas and crude rigs, and incorporate the more inclusive rig counting methodology used by RigData rather than some of the more extensively used rig count numbers.”
The BPI is explained in more detail in BENTEK’s Market Alert titled “A New Era in Rig Productivity” available for no charge on BENTEK’s website at www.bentekenergy.com. BENTEK’s regional Production Monitor reports track monthly trends in drilling and production in various areas of the country. The Production Monitor reports include regional BPIs as well as the weekly U.S. BPI.
BENTEK will release the U.S. BPI index number on Wednesday mornings at 8:00 a.m. Mountain Standard Time, posted at www.bentekenergy.com. For more information about BENTEK’s Production Monitor and the BENTEK Productivity Index (BPI), log on to BENTEK’s Website or call 1-888-251-1264.
For more information on the BPI, click here