U.S. Oil Production Declines Are Finally Over -- Here's What You Should Do Now

After years of backward growth, the U.S. production curve is finally seeing some green, and companies look ready to jump back in the game.

Motley Fool Staff
Motley Fool Staff
Jan 20, 2017 at 1:06PM
Energy, Materials, and Utilities

Last week, the Department of Energy released a report that confirms U.S. oil production declines are finally over and growth is on the rise.

In this clip from Industry Focus: Energy, Motley Fool analysts Sean O'Reilly and Taylor Muckerman explain what oil companies have been doing in the meantime, how hesitant producers will be to jump back into production, and why we probably won't ever see rig counts as high as they were during the last boom.

A full transcript follows the video.

This podcast was recorded on Jan. 12, 2017.

Sean O'Reilly: U.S. Department of Energy says that U.S. oil production declines are finally over. What has it been, two years?

Taylor Muckerman: Yeah. Early 2015, late 2014 is when people started to get tense.

O'Reilly: That's when I started doing this podcast. Maybe I was the cause. (laughs)

Muckerman: (laughs) You're the jinx? Yeah, 2015, you saw production slide. 2016 saw production slide. But apparently we're on the up.

O'Reilly: I have two questions for you. No. 1, how nervous is everybody going to be? How conservative are they going to be in ramping up production?

Muckerman: I don't know. You saw, like you mentioned, in the fourth quarter, we saw an uptick in production. You're still going to see the folks that can produce the cheapest, have the best odds of "winnning." Companies have been buying up land, they've been issuing stock to do so, they've been spending on their balance sheet to do so. And that's always been, at least in the last few months, in these basins like we talked about, the Eagle Ford and the Bakken, and maybe a little bit in the Utica, which is right there in Ohio, West Virginia, Western Pennsylvania region. So, they're really trying to find acreage that can produce at the $39 a barrel that we talked about in the Wolfcamp, or the $48 barrel breakeven in the Eagle Ford. So, I would imagine some trepidation in terms of people getting out there and tentatively starting to drill again. But, we've talked about it before, a lot of unfracked wells that folks just have that last stage to do, which is basically fracturing the wells. Horizontal drilling has already been done. So fracking and pumping is all that's left for a lot of those wells.

O'Reilly: I guess what I mean is, I can't remember where the land rig count topped out at. It was 1,300 or 1,400.

Muckerman: It was a lot.

O'Reilly: It was up there. We bottomed out at 300 or 500 or something, it was very low.

Muckerman: It's been a few months of rising rig counts, and that's mostly been in the Permian. Texas has been holding the mantle of increased drilling.

O'Reilly: I just have to assume it's going to be a while, or we're going to need way higher oil prices, for the rig count to get back to that level.

Muckerman: Yeah. Who knows if we ever see it again?

O'Reilly: Because they've gotten even more efficient. You know what I mean?

Muckerman: Yeah. Pad drilling where you can use the same rig on multiple wells within a smaller footprint, because you're basically just putting these rigs on a track, rather than having to disassemble them every time you want to drill a well. So yeah, they're more efficient, you can use a rig more than once over the course of a few weeks, rather than a couple times a month. Yeah, Halliburton (NYSE:HAL)Schlumberger (NYSE:SLB)Baker Hughes (NYSE:BHI) are making it work in terms of not needing as high of a rig count, and I think that will benefit the entire industry.