December 24, 2014
Oil production in recent weeks has blown past 1985 highs, but that trend is likely to change soon as companies are beginning to announce plans to cut their 2015 drilling budgets.
Continental Resources Inc., BP Plc., ConocoPhillips Inc. and Laredo Petroleum Inc. this week all announced plans to slow drilling activity in the first quarter. Others are likely to follow.
How deep the production cuts go is likely to depend on how low prices fall and how long they stay there.
But as companies curb their drilling activity, production will fall quickly, said Will Reagan, CEO of Oklahoma City-based Reagan Resources.
“Horizontal wells have prolific initial production, but they rapidly fall off,” he said. “By pulling back on the rig count, you’re going to suddenly see a decline in supply. It’s not going to take long for supply and demand to get back into sync.”
Rig counts already are falling. Eighteen fewer rigs were searching for oil and natural gas throughout the country last week than in the previous week, according to the latest numbers from Baker Hughes. The numbers represent the third decrease in four weeks, but the Dec. 19 U.S. rig count of 1,875 still was up 107 from one year ago.
Wunderlich analysts Irene Haas and Jason Wangler last week cut their price targets for several oil producers.