Recently I visited New York City and had occasion to talk with some people about the situation with oil in North Dakota. The question on their mind has to do with the continued high level of oil production despite the decreased price. Rather than total amount of oil produced, or barrels per day, let’s consider a different measurement, the amount of oil per rig.
The decline in prices exerts a huge toll on the rig count, but we see the amount of oil produced per rig increasing. This tells a really simple efficiency story to me. Those rigs still producing are in a sweet spot with excellent production characteristics and as marginal producers shutter operations the best situated producers are able to expand their production to take up the slack.