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October 29, 2013

Drilling often results in both oil and natural gas production

graph of new wells by production type, as explained in the article text
Source: U.S. Energy Information Administration, based on Drillinginfo

In 2011 and 2012, more than 50% of new wells produced both oil and natural gas. Despite this phenomenon, many traditional methods for estimating oil and natural gas production attempt to track the development of oil and natural gas as separate rather than joint activities.

The analytical framework of EIA's new Drilling Productivity Report (DPR) accounts for integrated production of natural gas and liquid hydrocarbons. In some cases, the classification of oil- or gas-targeted rigs, which is the focus of traditional rig-count methods, has changed from day to day. A more meaningful way to classify wells is to allocate the amount of oil and natural gas that can be expected to flow from each new well in a given play. This approach uses oil and natural gas production at the well before any flaring, refining, or gas processing. As such, all hydrocarbon production in the liquid state at the wellhead is treated as oil, and all unprocessed gas production (known as gross production) is treated as natural gas.

Oil and natural gas producers adjust their formation targeting in response to changes in the market value of natural gas and liquid hydrocarbons in an attempt to focus on the more profitable products. In some plays, careful study of the geology allows the producers to maximize production of the more profitable hydrocarbons (liquids or gases), based on current and expected market prices.

graph of new well gas/oil production ratio, as explained in the article text
Source: U.S. Energy Information Administration, based on Drillinginfo
Note: Mcf = thousand cubic feet; bbl = barrel; Btu = British thermal units

For example, the chart above shows the decrease in the ratio of natural gas to oil production from new wells drilled in the Eagle Ford region. This decrease coincided with the widespread application of horizontal drilling and hydraulic fracturing techniques in liquids-rich reservoirs and a relative increase in the price of oil compared to the price of natural gas.

The production estimates developed in the DPR include both the oil and natural gas volumes produced from typical new wells in a region without attempting to distinguish between oil and natural gas coming from wells designated as oil wells or gas wells. By aggregating portfolios of active rigs in specific regions with observable oil and natural gas production characteristics, EIA's approach shows emerging trends and produces improved estimates of production in the current and following month.

For a dynamic perspective of the shale gas and other tight oil development in the Eagle Ford, see EIA's animation of new well locations over time.

A future Today in Energy article will focus on how drilling efficiency relates to estimates of oil and natural gas production.

Principal contributors: Jozef Lieskovsky, Sam Gorgen