(Repeats with no changes. John Kemp is a Reuters market
analyst. The views expressed are his own)
* Chart: tmsnrt.rs/2maNQ81
By John Kemp
LONDON, March 6 U.S. oil drilling activity has
surged but so far the impact on production has been limited
because of the long delay in completing wells and reporting
The number of rigs drilling for oil has almost doubled since
hitting a cyclical low at the end of May and is up by more than
50 percent compared with a year ago, according to oilfield
services company Baker Hughes.
But output of crude and condensates has risen less than five
percent since May and is still below the level at the
corresponding point last year, according to data from the U.S.
Energy Information Administration.
The link between rig count and production has never been
strong because of wide differences in productivity between rig
sets and crews, and between shale plays and even individual
But the increase in drilling should eventually show up in a
significant rise in production, most likely with a delay of 9
months or more (tmsnrt.rs/2maNQ81).
Even under optimistic assumptions, it can take a very long
time from a decision to increase drilling to show up as an
increase in output in the official data.
In most cases, decisions about drilling programmes are based
on the level and change in oil prices over the previous 2-3
From the moment a decision is made to drill an additional
well, there can be a delay of 1-2 months before rig arrives on
location while contracts are placed and the rig is moved.
Rigging up, actually drilling the well and then removing all
the equipment from the site can easily take another month.
The arrival of the fracturing crew and other well completion
services usually results in a further delay of 2-3 months.
So the well could start producing 4-6 months after the
initial decision is taken provided there are no unusual
But production records are published for full calendar
months and output for the first month is likely to be for a
fraction of the full 30-31 days; full production will not be
recorded until the second month.
There will be a further delay before output is reported to
regulators and a final delay before regulators publish
Given all these delays, the full impact of a decision to
increase production is unlikely to show up in the official
production data for 9 months or more, and is based on prices
that are up to a year old.
Output reported now is the result of decisions taken in June
2016 or even earlier. More recent decisions taken in the autumn
of 2016 and early 2017 will not show up in output until later.
The big increase in drilling reported in the second half of
2016 and the first two months of 2017 will not show up in output
until the second half of 2017.
The delays in the system are an important source of
short-term oil price instability because decision-makers must
make choices based on information that reflects conditions up to
a year earlier.
At the end of the last boom, prices started to fall in June
2014, the rig count began to decline in October 2014, but output
did not start to drop until May 2015, and those numbers were not
reported until July 2015.
More recently, the doubling of oil prices since February
2016 has already triggered a big increase in U.S. oil drilling
but its impact on production will only be known later this year.
In the meantime, OPEC must make a decision in May about
whether to extend its production curbs without knowing how much
U.S. shale production is already set to grow later in the year.
(Editing by David Evans)