The impact of oil price changes on major US tight oil plays

ABSTRACT

US oil production for the last decade has been revolutionized by tight oil development activities around the country. The main oil plays contributing approximately 50% of the US total daily production are the Permian, Bakken, Eagle Ford, and Niobrara plays. Among the factors sustaining this tight oil revolution are advanced well positioning technology undergirded by high crude oil prices. Since the fourth quarter of 2014, oil prices have dropped from highs of $105/bbl observed in 2013 to lows of $28/bbl, leading to seismic shifts in activities across the oil plays. However, these impacts have not been uniform across all plays. This paper examines the varied impact of crude oil price fluctuations on the nation’s top tight oil plays. Using an autoregressive distributed lag (ARDL) approach, this study investigates the effects of oil prices and rig counts on oil production in these plays. The results show that oil price fluctuations affect all tight oil plays differently. Plays like the Permian show more resilience even amidst the oil price crash and plays like the Bakken are impacted in the short and long run by oil price fluctuations. This study also shows that the long-run impact of price fluctuations is not symmetrical and oil production increase caused by a rise in price is more sustained than production drops that follow price declines. In an era of lower oil prices, these insights become even more valuable to decision makers and operators who search for opportunities to stay profitable.

KEYWORDS:

• Asymmetry
• nonlinear ARDL
• oil prices
• rig count
• tight oil production

Notes

¹ Of these seven plays, the Utica, Marcellus, and Haynesville are focused primarily on natural gas.

² For example, the collapse in oil prices since mid-2014 has pushed US rig count down by more than 50% (BHI, 2016).

³ All data are collected from the US Energy Information Administration (EIA).