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API: Signs Are Pointing to a Drilling Slowdown

Domestic oil and natural gas drilling continued its surge in 2008, rising 19% in the fourth quarter and 15% for the year, with gas-targeted drilling accounting for slightly more than half of all activity, the American Petroleum Institute (API) said last Tuesday. But it warned that drilling activity is beginning to show signs of a slowdown.

For 2008 total estimated oil and gas well completions rose 15% to 61,450 over the prior year, according to the producer group. Total estimated natural gas well completions during last year increased 4% to 31,273 compared with 2007, while total estimated oil well completions rose 35% to 24,032 and dry holes totaled 6,145.

For the fourth quarter, API estimated that 16,451 oil and gas wells and dry holes were completed, up 19% over the comparable period in 2007. The producer group said natural gas continued to be the primary target for domestic drilling, with an estimated 8,267 gas wells completed in the fourth quarter of last year, up 6% from 2007's fourth quarter and more than double the gas drilling activity of a decade ago.

"Last year was a record year for drilling, with significant increases in total wells and particularly oil wells, which increased 35% over a year ago," said Hazem Arafa, director of API's statistics department. "But we are already seeing the warning signs that the trend toward increased drilling is slowing. For example, [in] the fourth quarter of 2008 we saw the number of oil exploratory wells slide 27%, as the economy faltered and oil prices plummeted."

While the number of oil exploratory well completions dropped in the fourth quarter, overall oil well completions totaled 6,442, a 43% increase from 2007's fourth quarter and the highest fourth quarter estimated oil activity in two decades. Oil development well activity, which rose 48% during the quarter to 6,219 from 4,204, accounted for the increase, API said.

API also reported total estimated footage of 114,028,000 feet drilled in the fourth quarter of 2008, up 29% from 2007's fourth quarter and the highest estimated fourth quarter footage drilled ever. Estimated oil well footage drilled in the fourth quarter was up 61% from the same period in 2007.

The slowdown in activity is also confirmed by Baker Hughes, which has said horizontal wells are especially feeling the pinch. The global oilfield services company said late last year that the U.S. natural gas rig count is falling, as expected, but the horizontal drilling rig count has begun to markedly decline, with its Dec. 26 report indicating the largest single-week loss for the shale-directed rigs since 1991 (see NGI, Jan. 5).

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