Author: Kurt Garst, Account Manager, U.S. Energy Services
For many years the number of active drilling rigs has been used as a general indicator of future gas production. This premise was never perfect and developments over the past few years have continued to break down this indicator relationship.
Chart 1 below shows oil and gas drilling activity since 2008. From 2009 through 2014 oil prices were generally increasing and natural gas prices were declining. Oil and gas drillers reacted to this pricing environment by shifting drilling resources from gas to oil. However during this time of decreased drilling of gas wells, gas production increased substantially as shown in Chart 2. Clearly the decreased gas drilling count did not lead to lower gas production during this period.
The drilling rig count is an enumeration of how many rigs are drilling wells, not how many wells are producing gas or oil. Also the number of rigs actively drilling doesn’t necessarily indicate how much gas the new wells being drilled will produce. Further, a well that has been drilled isn’t ready to produce gas until it has been completed and connected to a gas pipeline. Delays can occur between drilling and connection. There can be several reasons for delays. For instance, gas prices may have dropped too low to justify completing and connecting the well. Another reason can be that a pipeline connection is not immediately available or there is not sufficient capacity in the connecting pipeline to transport gas to market. Also, crews may not be available to finish the well completion work.
The past ten years have seen remarkable advancements in drilling oil and gas wells. This has further strained the relationship between the count of active drilling rigs and gas production.
- Drillers are better at knowing where to drill for oil and gas than in the past. Technological advancements provide better indications of what is below the earth’s surface. This increases the success rate of drilling wells which in turn reduces the number of rigs needed to drill wells that successfully produce gas and oil.
- Advancements in fracking and horizontal drilling methods have allowed drillers to successfully produce gas from less permeable rock formations (shale) than ever before. Better fracking techniques rupture rock formations and create better paths for gas and oil to reach the well. Improved horizontal drilling allows drillers to bore a well better following the oil and gas producing zone rather than previous techniques that only punctured zones perpendicularly. This exposes the well to more productive areas of the oil and gas reservoir and increases gas flow. Fewer rigs are needed to drill wells into productive areas than before.
- Many of these shale formations containing oil and gas are relatively shallow. Wells drilled into these producing areas can be drilled quicker because drillers don’t have to penetrate as far into the earth as the wells being drilled prior to the availability of fracking and horizontal techniques. This decreases the drilling time and costs which decreases the number of rigs needed to drill wells.
- Multiple wells can be drilled from the same location using directional and horizontal drilling. This means drilling rigs don’t have to be shut down, relocated and set back up before drilling a new well. A single rig can drill more wells faster.
Another important change over the last decade is that it is no longer as easy to designate a well as an oil or gas well. Many more wells are producing both oil and gas. Therefore looking at a count of the rigs drilling for gas can underestimate the future number of wells that will be producing gas.
In conclusion, the number of rigs drilling for gas is related to future gas production, but cannot be used as a primary indicator without consideration being given to other important factors.