Output in three prolific United States shale oil producing regions will decline in the near term as companies dial back on drilling rigs in response to low oil prices, the Energy Department’s statistics arm said Tuesday.
Production in the Bakken in North Dakota and Montana, the Eagle Ford in Texas and the Niobrara that rests predominantly in eastern Colorado will fall a combined 24,023 barrels per day in March and April, according to the U.S. Energy Information Administration’s drilling productivity report.
Oil prices have more than halved since June and currently fetch about $55 for Brent, an international benchmark, and $44 for West Texas Intermediate, a U.S. index. The decline represents surging U.S. production, a decision by Saudi Arabia to keep the spigot flowing rather than curtail output to boost prices and sagging global demand, namely in China.
But the EIA report wasn’t all bad news for the U.S. oil industry, as it said gains in other areas would leave April output “virtually unchanged” from March.
That’s partially because as oil prices have fallen, companies have shifted resources to drilling zones with the greatest returns. The Permian shale region in Texas, for example, is projected to increase by 21,254 barrels per day in April. Other regions covered in the report are slated to increase by 3,067 barrels per day.
The news comes after oil services firm Baker Hughes said the U.S. rig count dropped to 866 last week, representing the lowest total since March 2011. That reflects cutbacks companies are making in capital spending as plummeting oil prices make it more difficult to turn a profit in higher cost shale regions.
“The recent decline in crude oil prices has led operators to reduce the number of rigs in use,” the Energy Information Administration said, adding the report’s “results show sharp decreases in rig counts in all regions, starting in January and February of this year. When producers make the decision to lay down some drilling rigs, they generally start by idling the older, least-efficient ones first. The effect on production depends on the productivity of the remaining rigs.”
