As oil production soars, industry layoffs abound

American oil production is still booming in Texas and other energy-rich states despite the oil price crash and resulting mass layoffs and shuttered drilling rigs, raising the question of what it’s going to take to stop the fracking revolution.

A worldwide oil glut has driven oil prices down more than half since the summer, one of the largest price collapses in history. Nevertheless, U.S. crude oil production is forecast by the Department of Energy to increase to its highest level in more than 40 years.

Production in Texas rose to 2.3 million barrels a day in November, according to preliminary figures from the Texas Railroad Commission. Adam Sieminski, director of the federal Energy Information Administration, recently said he expects the coming year to see “new drilling in the major shale areas in North Dakota and Texas, which account for most of the growth in U.S. production.”

Such talk flies in the face of serious woes in the industry, and there are doubts whether the flood of American oil can last beyond the next several months.

The number of oil drilling rigs in action nationwide fell last week to 1,223, the lowest in three years and down 24 percent since October, according to the oilfield services company Baker Hughes. Texas led the way in rigs taken offline. Baker Hughes announced plans to lay off 7,000 of its workers. The oilfield services company Schlumberger said it was slashing 9,000 jobs.

The big oil companies are also cutting, with ConocoPhillips, for example, reducing its capital budget by a third from last year. More layoffs and budget cuts are expected across the industry, with boom towns in Texas and North Dakota bracing for the economic blow.

So how is it possible that U.S. oil production is still rising as companies slash their budgets, announce huge layoffs and decommission rigs?

“The reason is well productivity. We are getting a lot more out of the wells that are being drilled than we were before,” said Rusty Braziel, president of the oil industry research firm RBN Energy.

In the Eagle Ford shale of South Texas, it took 22 days to drill a well four years ago, Braziel said. Now it can be done in less than nine days.

That means a single rig that could drill 16 wells a year in 2011 can now drill 41 of them.

“And the initial production rates out of those wells have increased from 533 barrels a day up to 767 barrels a day,” Braziel said.

A major reason for that, he said, is that horizontal wells can now stretch much farther than they used to. The drill bit, once it is deep underground, is moved sideways thousands of feet. The longer it goes, the more oil-rich shale rock it touches.

That doesn’t mean the oil companies aren’t hurting financially, at prices currently around $50 a barrel.

“The crude oil plays are basically at break even,” Braziel said. “At $45, if it falls even more than this, most of the producers are going to be under water.”

The big question, though, is what will happen toward the end of the year if low oil prices continue as expected. Saudi Arabia is refusing to reduce its production in the face of the global oil glut, betting that eventually the low prices will force U.S. drillers to blink.

The energy consulting firm IHS believes the stunning growth in U.S. production could screech to a halt by the middle of 2015.

“Momentum from strong growth in the second half of 2014 means the impact of lower prices will not immediately drive production lower. But the reality of lower oil prices and less spending on new wells will affect production as 2015 progresses,” said Jim Burkhard, vice president of IHS Energy.

The Energy Information Administration expects American drillers to start pumping less oil around late summer. But the EIA believes that will be just a temporary dip and the United States will pump more oil overall this year than it did even during last year’s boom time.

“With projected (oil) prices starting to rise in the second half of 2015, drilling activity is expected to increase again as companies take advantage of lower costs for both leasing acreage and drilling services,” the agency said in its latest short-term forecast.

The federal government predicts that U.S. crude oil production will average 9.5 million barrels a day in 2016, the most since 1970.