A drilling rig in the Permian Basin in Texas. Global upstream oil investment is expected to recover after the lows of 2016 © FT montage; Bloomberg

When US shale oil production was still rocketing higher in 2013, about 1,400 rigs were drilling wells. The average horizontal well was 6,200ft long and was pumped full of 106,000 barrels of fracking fluid and 4.4m pounds of sand and other materials to coax crude out of stubborn rocks, according to Rystad Energy, a consultancy. 

Today, after a devastating oil rout, the number of rigs has fallen to 529. But horizontal wells average 7,100ft long and are flooded with 226,000 barrels of fluid and 9.2m lb of “proppants” such as sand, Rystad says. 

One result has been a stunning rise in output from the average US oil well. The total volumes have been significant enough to alter the world supply picture. This week the US government reversed its forecast of a decline in US crude output in 2017 and called for an increase. 

“The upward revision largely reflects assumptions of higher drilling activity, drilling efficiency, and well-level productivity than assumed in previous forecasts,” says the short-term energy outlook of the Energy Information Administration. 

Increasing productivity will be closely watched in Riyadh, Baghdad, Moscow and other capitals of oil exporters that have agreed to begin limiting output to boost prices this month. US shale producers are not party to the agreement and could undermine the exporters’ strategy by raising output. 

Oil watchers obsess over the “rig count” statistics released each Friday by Baker Hughes, an oilfield services company. The tally is a good indication of oil companies’ intentions to expand supply. The 529 rigs now deployed are 213 more than the low in May and currently top the sum in the field a year ago, reflecting producers’ response to a modest rebound in crude prices to more than $50 a barrel. 

But the rig count is only part of the picture. While the number of US oil rigs is two-thirds less than the peak in October 2014, the EIA estimates that US onshore crude oil production has shrunk only 6 per cent.

Rigs are the towering steel machines that drill oil wells. With the advent of horizontal drilling techniques, the drill bit makes a 90-degree turn underground to bore sideways through deep strata of shale. The hole is then pumped full of water, chemicals and sand to break up rocks and release gas and oil, a processing known as hydraulic fracturing. Rigs are moved to new well sites once the oil flows. 

One measure of productivity is known as estimated ultimate recovery (EUR), or the total amount of hydrocarbon extracted from a single well. In 2016, the EUR of the average US horizontal shale oil well was 736,000 barrels of oil equivalent, more than double the volumes of four years ago, according to Rystad. 

US shale oil wells get bigger and are drilled faster

Another factor is efficiency — a priority for oil companies trying to break even with lower oil prices. In core areas of the Permian and Eagle Ford basins of Texas, the amount of crude produced per foot of pipe in the ground has risen between 70-120 per cent from 2012 to 2016, with further gains to come in 2017, according to consultants Wood Mackenzie. 

Productivity has increased for several reasons. One is technological. Horizontal oil wells have become longer, meaning a single rig can locate more oil. Oil companies have experimented by jamming more sand and fluid into the wellbore. Average drilling times have fallen from 29 days to 20 days since 2013 as rigs become faster, Rystad figures show. 

EOG Resources, an exploration and production company, in September completed a well in the Eagle Ford shale loaded with an “extreme” 18m lb of sand and other proppant, says Artem Abramov, Rystad vice-president of analysis. The company has roughly doubled its EUR per well in the Delaware basin of Texas and New Mexico over the past year. 

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Oil must-reads

● Oil companies prepare to ramp up investment again
● Junk energy bonds premium eroded as oil price surges
● Oil in retreat towards $55 as bullish bets stall
● Opec’s long-term aim is to run down excess stocks

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“For EOG, I guess I’m confident that we’ll continue to see improvements in productivity,” Lloyd Helms, the company’s executive vice-president for exploration and production, told analysts in November. He described the company as “like a big laboratory. They’re always tweaking knobs.” 

Another cause of better productivity is geological. Pressured by low prices, oil companies have narrowed their drilling campaigns to the most prolific, profitable land. They jettisoned second-rate rigs and work crews. This raised average performance. 

“We’re drilling all the best, tier-one rigs right now on the best acreage,” says Dave Anderson, oilfield services analyst at Barclays. “On top of that you have the best service quality you’re ever going to see. It’s the best of the best.” 

As higher oil prices spur oil companies to start spending again, less efficient rigs will return to less desirable acreage, delivering less new oil per well. “The treadmill of productivity gains becomes tougher to stay on as you ramp the rig count up,” says Ben Shattuck, US upstream analyst at Wood Mackenzie. 

Yet the best rigs will remain, more productive than before. 

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