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Last week I pointed out in a TikTok video that the U.S. is poised to set a new oil production record. In response, someone took exception to my claim by stating that he works in the industry, and drilling rigs are stacking up.

It is correct that the rig count has fallen. According to data from Baker HughesBHI, the number of rigs drilling for oil and gas has fallen by about 20% in the past year.

This decline reversed a steady increase that began after the rig count bottomed out below 300 in the early stages of the Covid-19 pandemic in 2020. The rig count recovered back to nearly 800 rigs by the end of 2022 but has since declined back to about 620.

Nevertheless, U.S. oil and natural gas production are both poised to set new annual production records, after monthly production has risen steadily all year. How can that be if the rig count is falling?

Keep in mind that the rig count is a measure of rigs that are currently drilling for oil and gas. In many cases, the wells are drilled, but they aren’t completed. These are called drilled but uncompleted wells (DUCs), and that inventory is tracked by the Energy Information Administration (EIA) here.

What we can see is that since last December, the inventory of DUCs has declined from 5,300 to about 4,500. That reflects about 800 wells that started producing oil and gas, but that would not have been impacted by the falling rig count.

In addition, there are continuous technology improvements that have enabled a higher recovery of oil and gas per well. The biggest example of that can be seen in the natural gas rig count.

Back in 2007, there were around 1,500 rigs drilling for natural gas. In 2009, that fell below 1,000. In 2012, it went below 500, and it fell below 100 in 2016. Today it stands at about 120.

Yet, during that time, U.S. natural gas production increased by 80%.

It’s a similar story for oil. In 2014 there were 1,600 rigs drilling for oil. Today, there are 620, but oil production is 50% higher than it was in 2014.

Thus, using rig counts as a proxy for natural gas or oil production would have grossly misled you. Don’t confuse drilling with production.

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