The Thanksgiving Day Decision

Last November, OPEC sparked the decline in crude oil prices that would see both international benchmark Brent crude, and U.S. benchmark WTI crude, lose more than 50% of their value. The group decided to move away from its traditional role of maintaining a reasonable crude oil price in order to protect its market share around the world in the face of higher production from hydraulic fracturing in the United States.

The OPEC decision, which the group made on Thanksgiving Day 2014, fundamentally changed the landscape of global oil markets. Producers were forced to go back to their most economic acreage and find ways to increase efficiencies in order to maximize their well economics. U.S. E&P companies in EnerCom’s E&P database saw their market capitalization decline by approximately 30% from November 26, 2014, the day before the OPEC decision, to the end of October, 2015. Over the same time period, companies in EnerCom’s Oilservice database saw their market capitalization decline by 28%.

OPEC, Market Cap

Data and graph: EnerCom

With oil prices half of what they were, companies cut capital expenditures—drilling activity plummeted following Thanksgiving 2014. The total number of rigs drilling for oil was down 63% on October 23, 2015 from its level just a year earlier. Despite the lower rig count, new wells have been producing more from both oil and gas assets across the board in U.S. fields as operators increase drilling efficiencies, according to the Energy Information Administration’s (EIA) monthly Drilling Productivity Report.

OPEC, Productivity, Drilling

Source: EIA

While the substantially lower prices caused by the OPEC decision were expected to reduce the number of rigs drilling for oil and gas, and by extension result in lower production, eventually rebalancing markets, only the first step of that process has been realized. In OPEC’s member countries, the overall number of rigs actively operating is down, but production remains above levels seen a year ago. In the U.S., rig counts have dropped dramatically, but production is still largely in line with levels seen last November.

Saudi Arabia pushed rig counts higher even as prices plummeted

Information collected by Baker Hughes (ticker: BHI), which tracks the rig count both in the U.S. and abroad, shows a decline in the overall number of rigs in OPEC countries since November 2014, although the number of rigs in Saudi Arabia have continued to increase over that period of time.

OPEC’s rig count fell from a high of 458 in August 2014 to 432 in November of the same year. The group’s total rig count climbed through February 2015, following the decision to maintain production, before dropping through July to a low of 405. OPEC has added rigs since then, according to BHI, with data from September 2015 showing 418 rigs for the group.


Data: Baker Hughes Graph: EnerCom

On a per-country basis, the number of rigs varied from country to country, with most remaining steady or showing some decline. Saudi Arabia, the group’s largest producer, has continued to add rigs consistently from November 2013, through the Thanksgiving Day decision, and forward to today with only minor drops throughout. Iraq saw a substantial drop in its rig count from July to August 2014, with continued declines following the November decision.


Data: Baker Hughes Graph: EnerCom

OPEC production still above levels from last November

While the number of rigs operating inside OPEC countries is lower than in November of last year, the group’s production has grown.


Data: OPEC Graph: EnerCom

Most OPEC members have kept their production relatively flat since November 2013, but Saudi Arabia and Iraq (and to a lesser extent, Nigeria and the UAE) have been pushing total production higher. The group has produced well in excess of its self-imposed production quota of 30 MMBOPD through the second-half of 2015, with October numbers indicating the group produced at an average of 31.57 MMBOPD, a three-year high.


Data: OPEC Graph: EnerCom

U.S. production heading back toward levels seen on Thanksgiving 2014

In the U.S., shale production continued to climb for six months following the decision from OPEC, but eventually leveled off in June, and has returned to levels close to those seen at the end of November, 2014. U.S. production peaked in March at 9.7 MMBOPD, according to the Energy Information Administration, but has declined to around 9.1 MMBOPD since September. Production at the end of November 2014 stood at 9.08 MMBOPD, according to data from Bloomberg.

OPEC, Production

Source: Bloomberg U.S. crude oil production

The decision by OPEC to eschew its traditional role in the market of maintaining oil prices saw oil rigs tumble, both inside its own members, and in the U.S., but production has not gone lower than when OPEC first made its announcement Thanksgiving Day that it would no longer prop up crude oil prices.

As Thanksgiving Day 2015 approaches, Oil & Gas 360® will continue to look at several aspects of the changing landscape since the group’s decision a year ago.

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