U.S. Crude Production Advances Even as Prices Decline

Drillers that unlocked the shale oil boom in the U.S. are finding it hard to shut off the nozzle.

U.S. crude production rose even as prices slumped to the lowest in more than five years and the number of rigs targeting oil decreased. In North Dakota’s prolific Bakken shale formation, output rose in November as the number of new wells coming online fell by 73 percent.

The increases illustrate how improvements in horizontal drilling and hydraulic fracturing technology may prop up U.S. crude production even as companies cut spending, idle rigs and lay off thousands of workers with oil prices down more than 50 percent since June.

“We have an oversupply of crude,” Michael Hiley, head of energy OTC at LPS Partners Inc. in New York, said yesterday. “Production keeps going up. There is not a great correlation between the rig count and production because drilling has gotten more efficient over the last several years.”

Output climbed to 9.19 million barrels a day last week, the most in Energy Information Administration weekly estimates going back to 1983. Strong production helped push crude inventories to a seasonal record, EIA data showed.

Crude has slumped 9 percent in 2015 after declining 46 percent in 2014 as shale oil lifted U.S. supply and the Organization of Petroleum Exporting Countries maintained production. Last week, U.S. oil rigs declined by the most since 1991. Producers including Continental Resources Inc. and ConocoPhillips say they will cut spending.

Crude Slump

West Texas Intermediate crude for February delivery gained $2.59 to $48.48 yesterday on the New York Mercantile Exchange after ending at $45.89 the previous day, the lowest level for a front-month contract since April 2009.

Crude production climbed 60,000 barrels a day from the previous week, the EIA, the Energy Department’s statistical unit, said in a report. The weekly production number is an estimate based on EIA’s monthly Short-Term Energy Outlook forecasts. Crude stockpiles increased 1.4 percent to 387.8 million last week.

The nation’s oil boom has been driven by a combination of horizontal drilling and hydraulic fracturing, or fracking, which has unlocked supplies from shale formations including the Eagle Ford and Permian in Texas and the Bakken in North Dakota.

North Dakota

North Dakota produced a record 1.19 million barrels a day in November, up 0.3 percent from October, according to the state. The increase came with drillers bringing 39 new wells online during the month, down from 145 in October.

Last year it took at least 90 new wells a month to keep output from falling, Lynn Helms, the state’s oil and gas director, said yesterday on a conference call. As prices fell, companies focused on the most prolific drilling areas, boosting per-well performance.

“That’s the silver lining,” Helms said. “The ray of sunshine is that within the core area it doesn’t take as much activity to maintain 1.2 million barrels a day.”

North Dakota will maintain current output with at least 130 rigs drilling new wells, down from previous estimates of 140 to 155 rigs, Helms said. There are 156 rigs in the state now, and the count is expected to fall to the low 120s by the third quarter if prices don’t rebound.

Crude production will increase to 9.31 million barrels a day this year from 8.67 million last year, the EIA forecast in the STEO report this week. Output will continue to grow in 2016 to 9.53 million.

“Production is not going to be proportional to the rig count,” Howard Gruenspecht, the EIA’s deputy administrator said on a conference call this week after the release of the report. “The drilling that will continue to go on will tend to be the better operators, better rigs and better prospects.”

The oil rig count declined 61 in the week ended Jan. 9 to 1,421, the lowest level since February, according to Baker Hughes Inc. The amount reached a record 1,609 in the week ended Oct. 10.

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