Remember when rig count was the widely watched weekly barometer for change in oil and gas activity?

That era is fading, thanks in part to gains in drilling efficiency and the transition to batch drilling and completion practices in tight-formation oil and gas plays. Consequently, interest is shifting to alternative methods for gaining insight into what is going on in the field and how that impacts oil and gas production.

Enter the U.S. Energy Information Administration, which is now publishing a monthly drilling productivity report for domestic oil and gas.

Highlights from the first report show monthly oil production rising at the rate of 24,000 barrels of oil per day in the Eagle Ford shale and 23,000 barrels of oil per day in the Bakken shale, with both accounting for 75% of new oil daily oil production in the U.S.

Similarly, the Marcellus shale accounts for 75% of natural gas production growth domestically, even while the Marcellus rig count has retreated 39% from a peak of 144 units at the end of 2011.

Perhaps the most interesting take-away from the new EIA report is that the industry must expend significant effort to offset depletion. In the Eagle Ford shale, 77% of active rigs are essentially negating the play's natural decline rate. It is a similar story in the Bakken shale, where 70% of rig count is necessary to offset natural production declines.

The monthly drilling productivity report examines changes in six provinces, including the Marcellus, Niobrara, Haynesville, Eagle Ford, Bakken and Permian Basin that collectively represent 90% of domestic oil production growth and all the domestic natural gas production growth in 2011-2012.

The EIA report breaks down production in each market into an individual rig metric, then combines drilling levels and production data to compare change on both a year-over-year basis and sequentially, by month. The study incorporates legacy declines from existing wells along with new well production, making it possible to develop a recurring monthly snapshot of change in the six major oil and gas markets.

For example, the EIA projects each new well in the Marcellus shale contributes 6 million cubic feet of natural gas per day and another 36 barrels of oil per day. For October, the combined effort of the 97 rigs turning to the right in the Marcellus generated 579 million cubic feet of new natural gas per day. The EIA pegged monthly decline in the Marcellus at 171 million cubic feet of gas per day, leaving a positive net change of 408 million cubic feet of gas per day. Natural gas production in the Marcellus, which includes the decline from legacy wells plus new well additions, will top 12 billion cubic feet per day in November, according to the report.

The EIA study implies that it takes 25 rigs to offset depletion in the Marcellus and keep gas production flat, or about 26% of current rig count.

Compare that to the dry-gas Haynesville, where each new well was projected to add 5.018 million cubic feet of natural gas per day in November 2013. The EIA estimates that the 46 rigs working in the Haynesville will deliver about one-quarter billion cubic feet of natural

gas per day in new production in November. However, those legendary Haynesville decline rates are evident in the fact that legacy production in the formation was dropping at the rate of 348 million cubic feet per day in October, leading to a net decline of 120 million cubic feet per day. Consequently, monthly production was projected to drop from 6.7 billion cubic feet per day in October to 6.6 billion cubic feet per day in November.

The EIA numbers imply that 70 rigs are needed to keep production flat in the Haynesville versus the 46 rigs at work in the study.

Those two basins, the Marcellus and the Haynesville, illustrate why natural gas production onshore is still growing despite a significant drop in the gas-directed rig count over the past two years. Essentially, the Marcellus could transfer 25 rigs to the Haynesville and lay down 43 more with the net result being that Marcellus and Haynesville gas production would stabilize. New production would essentially offset depletion and keep combined gas production flat in both basins.

Bakken, Eagle Ford churn

But oil is where the action is, and domestically that action is overwhelmingly associated with the Bakken and Eagle Ford shales.

For the Bakken, the EIA estimates new production will total 86,000 barrels of oil per day from new wells in October. Legacy production will drop 60,000 barrels of oil per day, leading to a net positive change of 26,000 barrels per day out of the Bakken by the end of October and an overall production rate of 961,000 barrels of oil per day in the play.

The EIA tallied 178 rigs at work in the Bakken, a number that implies it takes 124 rigs to offset depletion and keep production flat. In other words, 70% of the Bakken rig count simply offsets monthly production declines, with the net gain in production a consequence of roughly 53 drilling rigs.

Meanwhile, productivity gains are evident in the fact that net oil production per active rig in the Bakken was growing at the rate of 23 barrels of oil per day in October to a projected estimate of 482 barrels of oil per day for each new well in November.

In the Eagle Ford, productivity per rig expanded sequentially by eight barrels to 404 barrels of oil per day.

The EIA also projects each rig will generate an additional 16,000 cubic feet per day in natural gas to top 1.01 million cubic feet per day. In other words, the EIA study shows each Eagle Ford rig was producing the equivalent of 404 barrels of oil per day and 1 million cubic feet of natural gas per day in October.

Natural gas production in the Eagle Ford shale has now topped 4.5 billion cubic feet of gas per day, more than double the 1.2 million cubic feet per day generated in January 2012.

Eagle Ford oil production from new wells grew 105,000 barrels of oil per day in October, offsetting a decline of 81,000 barrels of oil per day for a net positive change of 24,000 barrels per day. The EIA numbers indicate Eagle Ford oil production exceeded 1.07 million barrels of oil per day in October, second only to the Permian Basin, and was projected to reach 1.09 million barrels of oil per day in November 2013.

However, depletion is an issue in the Eagle Ford. The EIA study implies it takes 200 rigs, or 77% of the Eagle Ford rig count, to offset natural declines, with the net gain in production originating from just 59 rigs.

In the Permian Basin, net oil production is growing at the rate of 1,000 barrels of oil per day with new wells contributing an average 79 barrels of oil per day. According to the EIA, Permian production will stay flat at 1.292 million barrels of oil per day in October on a rig count of 443 units.

Of interest, the EIA productivity study shows legacy decline rates accelerating in all oil plays, including the Bakken, Eagle Ford, Niobrara and Permian Basin, though the combined decline rate in the Eagle Ford and Bakken was 40,000 barrels of oil per day greater in 2013 than the same period in 2012.

In contrast, the decline rate from legacy wells in the Haynesville shale was 53 million cubic feet per day less in 2013 than for the same period in 2012.

For more on rig count trends, see UGcenter.com and OilandGasInvestor.com.

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