Oil Price Decline Shows Strong Effect
While low oil prices have been a strong concern in the drilling industry recently, the most recent peak in the price of oil wasn’t that long ago. In June of 2014, the average price of a barrel of crude was $108.37. However, those prices were fairly short-lived. By the end of the following January, the cost had fallen to $47.11, and while prices were briefly over $60 a barrel in May and June, they have recently stagnated at or below the $50 mark. When this price drop first occurred, analysts pointed to many factors as having contributed to it. Bloomberg Business published an article that credited slowing demand from Europe and China, less violence than expected in the Middle East, and the boom in U.S. production.
High tech drilling methods in regions such as Eagle Ford played an important role in revitalizing the production of U.S. oil. First drilled in 2008, this region has been one of the most prolific in the country. However, the lower prices of oil that came partially as a result of this new oil boom are starting to heavily impact productivity. Output at Eagle Ford is decreasing, causing serious production cuts in the South Texas region.
Significant Production Cuts
A recent article in the Wall Street Journal demonstrated the impact of the current situation. Production in Eagle Ford had decreased by 13%, or nearly 227,000 barrels per day, from April through September. According to the Texas Railroad Commission, this is down from a peak of 1.5 million barrels a day in January. A number of operators in the area have begun to decrease their production. The Journal article quotes NavPort LLC as indicating that major companies in the area have completed 40% fewer wells when compared to the previous year. A number of companies, including EOG and Exco Resources Inc., have stated that they intend to decrease or suspend drilling programs in Eagle Ford.
The Good News
While these numbers may seem grim, the news may not be all bad. The most important thing to keep in mind in Eagle Ford is that production is not decreasing because the resources are depleted; these decisions are being made due to current economic conditions. Unfinished wells still have plenty of oil in them, and can quickly be tapped if and when prices rebound. Furthermore, the climate of South Texas eliminates weather concerns that can stop wells from being tapped during the cold weather months. As long as they retain access to the land, oil companies can resume any time of the year.
So how much oil is actually left in Eagle Ford? No one knows for sure, but recent reports indicate that its life expectancy could be as long as 30 years, outlasting a number of similar shale wells. When prices become more favorable, Eagle Ford will still be a significant player in the industry.
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