Wednesday, June 22, 2016

Oil Rig Productivity 4X what it was 2 years ago

Rig productivity may be a game changer very few investors are taking into consideration, as each rig can produce over 4X what it did a couple of years ago, according to Capital Economics.

In 2014 a rig could pump out about 6,000 barrels of oil per day. Today, a new rig can pump out an average of 27,000 barrels per day. That of course doesn't necessarily mean each well can meet the capacity of the rig, but with the improvement in identifying top-producing wells, it's almost a guarantee they'll come close to it.

What this suggests is the new rigs being added in the U.S. may be pumping out far more oil than the market is looking for, which would offset the decline in production from low-cost shale producers much stronger than expected.

When combined with the increase in production from some OPEC countries, it could be a strong headwind in the months ahead if the new rigs contribute a lot more supply than is being priced in.

More on new oil rigs and increased productivity.

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