BHI: US rig count adds 10 units, continues onshore drilling spike
The US drilling rig count during the week ended Apr. 21 climbed by double-digits for the 11th time in its 14-week streak of increases, Baker Hughes Inc. data indicate (OGJ Online, Apr. 13, 2017).
The overall tally of active rigs rose by 10 to 857, up 453 units since the nadir of the drilling downturn on May 20-27, 2016, and its highest point since Sept. 4, 2015.
Land-based rigs gained 11 units to 834, with horizontal rigs jumping 12 units to 718, up 404 since May 20-27. Directional drilling rigs lost 4 units to 60. Rigs drilling in inland waters were unchanged at 3, while offshore rigs dropped a unit to 20.
Fitch Ratings projects the US Lower 48 land rig count to grow to 850-875 units by yearend, averaging around 800 for the full year, given the expectation of growing production, higher oil and gas prices, and leaner cost structures leading to increased cash flows for producers (OGJ Online, Apr. 21, 2017).
“Capital allocation is expected to be weighted toward the highest-return shale plays with growth potential such as the Permian, Eagle Ford, STACK, Haynesville, and Marcellus basins,” Fitch said.
Separately, Wood Mackenzie Ltd. said that US Lower 48 onshore operators are beginning to experience cost inflation following a flurry of first-quarter development activity (OGJ Online, Apr. 20, 2017). The research and consulting firm forecasts 15% cost inflation in 2017, with variability across basins.
WoodMac noted, however, that horizontal rigs will likely see half the cost inflation rates compared with that of pressure pumping as rigs are operating with greater efficiencies and faster drilling times.
“Despite our projections for a 10% cost inflation for horizontal rigs this year, it's unclear how much traction drilling contractors will gain on new long-term rig contracts,” the firm said. “Many producers signed long-term rig contracts at peak prices in 2014, which are now expiring in a spot market that's 40% down, triggering deflation in some cases, and likely influencing contracting activity this year.”
The use of longer laterals and fewer wells may limit the amount of rig contracts compared with those of previous years, and with operators electing to hedge oil prices and limit drilling within cash flow, rig growth could moderate during the second half, WoodMac said.
US oil output rebound
The US oil-directed rig count gained 5 units during the week ended Apr. 21 to 588, up 372 since May 27, according to BHI data. Gas-directed rigs rose 5 units to 167, up 86 since last Aug. 26. Two rigs considered unclassified remained operating.
The US Energy Information Administration said overall US output during the week ended Apr. 14 expanded 17,000 b/d to 9.252 million b/d. Lower 48 output rose 21,000 b/d, slightly offset by a 4,000-b/d drop in Alaska.
EIA also this week forecast crude output from the seven major US onshore producing regions to increase 124,000 b/d month-over-month in May to average 5.193 million b/d (OGJ Online, Apr. 17, 2017). Production, which has been gaining steam each month this year, will mostly come from the Permian and Eagle Ford.
Permian oil output is projected to rise 76,000 b/d month-over-month in May to 2.362 million b/d, while Eagle Ford output is expected to gain 39,000 b/d to 1.216 million b/d.
The two regions also have by far the highest inventories of drilled but uncompleted (DUC) wells in the US. The Permian gained 90 DUC wells month-over-month in January and now totals 1,864, while the Eagle Ford rose by 26 during the month and now has 1,285.
Given the increased drilling, EIA last week revised upward its overall US crude production forecast to 9.2 million b/d in 2017 and 9.9 million b/d in 2018.
Texas, Eagle Ford drilling advances
Texas added 10 units during the week and now tallies 426, up 253 since last May 20-27, BHI data indicate. The Eagle Ford continued its recent surge with a 3-unit increase to 78, up 47 since Oct. 14.
The Permian merely edged up a unit this week to 340, up 206 since May 13. The Granite Wash and Barnett each also gained a unit to respective totals of 10 and 6.
Outside of Texas, activity was light. North Dakota, Pennsylvania, Colorado, Wyoming, and Alaska each rose a unit to respective counts of 44, 34, 29, 19, and 6. The Williston, Marcellus, and DJ-Niobrara also were up 1 each to 44, 46, and 25, respectively.
Oklahoma edged down a unit to 124 but remains up 70 units since June 24. The loss took place in the Cana Woodford, whose tally of 51 is still up 27 units since June 24.
Canada’s seasonal drilling dive took down another 14 rigs to bring the country’s total to 99, a decline of 253 units since Feb. 10. Oil-directed rigs dropped 7 units to 33, while gas-directed dropped 12 units to 66.
The increased focus on gas by operators in Canada includes Encana Corp.’s Montney program, which is targeting 70,000 b/d of liquids, most of which will be condensate, as well as 1.2 bcfd of natural gas by 2019 (OGJ Online, Apr. 21, 2017).
Contact Matt Zborowski at [email protected].
