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What Drives Production: Rig Count or Well Completions?

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Much as has been said over the years about the link between rig counts and production.  The industry watches the rig count weekly and refer to it as a proxy for production growth.  We also have companies who in most of their investor materials tout the link between production and rig count.  Now we would like to debunk that myth. 

While rig count is a great metric to measure "commited capital", it has become apparent that it has limited use when trying to understand/forecast production growth (negative or positive). 

Earlier last week, a subscriber asked us the following "How can Apache keep production growing amidst such a drastic drop in rig count."  our response was, don't let the chart fool you.

Below is the slide from Apache's November 2019 investor presentation, where the company touts "Doing More with Less in the U.S. While it is true, the company has lowered its rig count over the year, what it did leave out was the well count.   As you can see from the chart below "U.S. Production vs Wells Completed", Apache's production grew as a result of the number of wells completed and in no way was linked to its rig count. 

The relationship between well count is even more apparent when you look at 4Q18 when the well count fell, 2 quarters later, production fell as well. 

Production vs. Rigs

Source : Apache November 2019 Investor Presentation

Apache's reported Production vs. Well Completions

Source : Shale Experts Operator Database, Apache Quarterly Supplements

Parsley Energy

Parsley Energy also reported a similar outcome in rig count vs. production totals.

Source : Parsley Energy November 2019 Investor Presentation

Parsley Energy also touted a similar slide, so we took at a look at its well count vs oil production (bopd).   As you can see from the chart below the same applies for Parsley, quite frankly, this applies to all companies.

We should instead, focus on well count when talking about production growth (- or +).  I am sure the next time you see a investor presentation touting "doing more with less" and it links rigs to production, you will simply smile and ask, "I would like to see your well count as well".