LONDON, Jan 7: Unless prices recover, US oil production will start falling before the end of 2015 as new drilling is insufficient to replace declining output from wells completed in 2013 and 2014.
Future production depends on the rate of decline from existing wells (known as the decline curve) and the average age of old oil wells as well as the number of new ones drilled and their productivity.
Decline curves for typical shale wells in the Bakken, the Permian Basin and the Eagle Ford are all widely available on the internet, as are basic data on the number of wells in each play and their approximate age.
In the short term, U.S. oil production is set to continue rising because there is still a backlog of wells waiting for fracturing crews and completion after the record drilling during the first ten months of 2014.
In North Dakota, for example, there were around 650 wells waiting on completion services at the end of October 2014 because drillers had outpaced completion crews, according to the state's Department of Mineral Resources.
As these wells are completed, there will be a significant increase in reported output because newly completed wells yield extremely high rates of production in the first few days and months after starting to flow.
But as the backlog is cleared, production will plateau and then start to fall, as new drilling and completions fails to keep up with the declining output from older wells.
Daily production from a typical Bakken well falls by around 65 per cent by the end of the first year, then another 35 per cent by the end of the second, 15 per cent by the end of the third, and around 10 per cent per year thereafter, according to state regulators (link.reuters.com/kup73w).
There are currently around 8,600 wells producing from the Bakken shale, of which more than 2,000 were drilled and completed in 2014, with another 1700 dating from 2013 and 1700 dating from 2012.
Almost a quarter of Bakken wells are under a year old and their output is set to decline by as much as two-thirds in the year ahead.
In total, more than half the wells in the Bakken are less than three years old, and these rapidly declining wells account for the vast majority of oil output (link.reuters.com/nup73w).
To replace the declining production from this large inventory of recent wells, companies would need to drill more than 2,000 new wells in 2015.
But drilling rates have already started to fall sharply and the number of new wells will fall far short of the replacement rate unless oil prices improve. ?Reuters