By Sandy Fielden, RBN Energy LLC The second release of the Energy Information Administration’s (EIA) new monthly Drilling Productivity Report (DPR) for November came out on Nov. 12, 2013, showing December natural gas production is expected to increase in four of the six regions covered. But one region alone – the Marcellus – accounts for 76% of natural gas production growth. In fact if the Marcellus were a country it would rank fifth in world gas production – ahead of Qatar. The DPR provides a breakdown of rig productivity and production from new and legacy wells and includes access to historical data back to 2007. Today we continue our review of the latest EIA report. In the first part of this series (see A Better Forecast of Drilling Rig Productivity) we looked at summary data from the first EIA monthly DPR report for October 2013 that details oil and gas drilling productivity in six of the largest US production basins. Today we take a detailed look at data in the November report for the Marcellus region of Pennsylvania and Ohio – by far the most rapidly growing gas-producing region in the US with estimated production in December 2013 (according to the DPR) of 12.9 Bcf/d – up 0.4 Bcf/d over November (12.5 Bcf/d). We have previously written extensively on Marcellus production and its impact on the natural gas market (see for example our series “The Marcellus Changes Everything” and more recently How Marcellus Forecasts Changed the World Sooner than we Thought). Frankly the scale of Marcellus production is beginning to defy superlatives, but one statistic we saw recently caught our attention. If the Marcellus were its own country then its production (based on 2012 volumes) would rank fifth – ahead of Qatar and close enough to Canada (15 Bcf/d) to catch up in a couple of years. Wow! After the summary page (that we covered last time), the DPR report contains a page of data on each of the six regional basins (Eagle Ford, Bakken, Permian, Marcellus, Haynesville, and Niobrara). Today we will walk through the latest Marcellus data to introduce you to what the report provides. The statistics for each basin follows the same format so we are not going to go through all six one-by-one you may be glad to hear. Rig Productivity The first section of the DPR Marcellus regional section shows estimated rig productivity. We defined the DPR rig productivity measure in the previous post in this series as follows: “The rig productivity measure starts with an estimate of crude and natural gas output from new wells in a region during their first month in production. Rig productivity (calculated separately for oil and for gas) is that new well output divided by the number of drilling rigs in the region.” For the Marcellus oil rig productivity estimates are on the left and the gas numbers to the right at the top of the report section (see Figure 1 below). The estimates indicate how much oil or gas is expected to be produced from new wells per average drilling rig in the region for the current and following months. To produce these estimates, EIA use recent weekly active drilling rig count data from Baker Hughes to produce a monthly average rig count for all oil and gas rigs in the region. They then use several months of new well production (the first 30 days output) divided by the region’s monthly average rig count – lagged by two months – to arrive at monthly additions of oil and gas from one rig. The two-month lag in the rig count data reflects the time between drilling and production. EIA's approach does not distinguish between oil-directed and gas-directed rigs – it counts all active rigs – because once a well is completed, it may produce both oil and gas. The Marcellus data in the November 2013 report indicates that gas productivity per rig increasing by 118 Mcf/d (versus 160 Mcf/d in the October report) and oil up by a mere 2b/d (the same as October). Figure 1 Figure 1 (Source: EIA) The DPR measure of rig productivity is more meaningful than just looking at raw rig count data because it takes production into account as well as drilling time. The second section of the Marcellus page shows the total rig count and new well production per rig from the start of 2007 (see Figure 2 below). The rig count is the same for oil (left chart) and natural gas (right chart). The oil and gas production numbers are the same as those in the first section – based on the first 30 days of production from new wells only. The monthly EIA publication includes the historical data behind these charts in a downloadable spreadsheet form. The charts show just how dramatically Marcellus gas productivity has increased – particularly since 2010. In contrast, oil production from the Marcellus, has been a trickle at best in this largely gas centric play with minimal associated oil. Figure 2 Figure 2 (Source: EIA) The third section of the DPR shows month-on-month production from so-called “legacy” wells – those that have been in production for over 30 days. As we learned from our previous analysis of well productivity modeling, shale wells typically experience quite steep production declines after the first month (see The Truth is Out There). As a result the data presented in these charts will typically be negative (see Figure 3 below) because legacy well production is depleting over time. However, there could be other reasons for an interruption in production that would alter the month on month data – such as well freeze-offs (see Cold As Ice) or pipeline capacity constraints. The Marcellus oil charts (on the left) show an increase in the monthly production declines after 2010 as drilling increased in the Marcellus but the volumes remain insignificant compared to gas. The natural gas legacy production decline chart (on the right) shows an inverse relationship to the drilling rig count in Figure 2 – with a few months lag. In other words, as the drilling rig count and production ramped up between 2010 and 2012 the decline rate from legacy wells increased dramatically (red circle on the chart). As Marcellus drilling leveled off in 2012 (in response to lower gas prices in 2012 and waiting for infrastructure to catch up) so the rate of decline in legacy wells has leveled off since 2012. Figure 3 Figure 3 (Source: EIA) The next section of the Marcellus DPR shows the overall monthly change in oil and gas production. This is just a summary of the previous three sections. If production from new wells is greater than declines from legacy wells then overall production is increasing. If production from new wells fails to match declines from legacy wells then overall production declines. In the Marcellus oil production is expected to increase in December 2013 by 3 Mb/d and gas production to increase by 411 Mcf/d. The last section of the regional DPR shows total Marcellus production history for oil (left side) and gas (right side) since 2007 (see Figure 4 below). Once again Marcellus oil volumes are miniscule in industry terms (adding 3 Mb/d in December 2013) and the main story is about natural gas – where production continues to expand (adding an estimated 411 Mcf/d in December 2013). This production history is also included in the downloadable spreadsheet provided with the report. Production data reflects all wells reported to state oil and gas agencies or EIA estimates in cases where state data are not immediately available. EIA estimates the production based on changes in new-well production and the corresponding legacy change. Figure 4 Figure 4 (Source: EIA) The regional sections of the DPR provide us with a clear understanding of rig productivity going forward as well as its historical context. The changes in legacy production track the important depletion rate for existing wells. The overall production data indicates the direction and rate of change in both oil and gas production. Going forward, these indicators should provide early warning of changes in the direction and rates of production for each of the six “powerhouse” basins that the DPR report focuses on. Analysts are always happy to get more data from the Government and we at RBN Energy are no exception. This report is a valuable addition to understanding the extent of new US oil and gas production in a rapidly changing energy environment. But naturally we want still more data so hopefully we will soon see additional basins joining the founding six – like the Utica or the Anadarko – to paint a more complete picture. This article originally appeared on RBN Energy’s blog.