BHI: US rig count decline slows; production increases

The US drilling rig count dropped 20 units—with just slightly more than half targeting oil—to settle at 1,028 rigs working during the shortened week ended Apr. 2, according to data from Baker Hughes Inc.

The rig count decline has noticeably slowed during the last 2 weeks, losing a combined 41 units compared with 56 units over a one-week period 3 weeks ago.

The count still has fallen in 17 consecutive weeks, during which time it has plunged 892 units (OGJ Online, Dec. 5, 2014). The total of 1,028 is the lowest count since Oct. 2, 2009, and 790 fewer units compared with this week a year ago.

Despite the continued declines, Rystad Energy estimates US annual oil production—crude oil plus lease condensate—will peak at 9.7 million b/d in September assuming WTI stays at $55/bbl on average for the year.

Estimated average production by Rystad of 9.65 million b/d in 2015 would be an all-time high, surpassing 9.64 million b/d in 1970. The US Energy Information Administration this week reported US production in 2014 hit 8.7 million b/d (OGJ Online, Mar. 30, 2015).

“The monthly peak is estimated at 9.7 million b/d by September 2015, assuming horizontal oil rig count for Bakken, Eagle Ford, and Permian will stabilize at 400 rigs, which is 43% below peak,” explained Per Magnus Nysveen, senior partner and head of analysis at Rystad.

“Production could be even higher depending on assumptions like lower drilling costs, thus more barrels per dollar spent, narrowing price differentials in North Dakota, and reduced backlog of completed wells,” Nysveen said.

Moody’s Investors Services believes global oil production “will continue to rise in 2015 and swelling oil inventories will restrain prices despite a sharp contraction in the US land rig count and reduced upstream spending,” it said in its oil field services and drilling industry outlook.

However, additional US rig count declines are in order. “Since we do not expect a meaningful recovery in oil prices until early 2016, we believe total rig count could fall near 900 rigs by mid-2015, as oil markets establish a price floor and supply growth tapers,” it said.

Offshore rigs falling

Offshore rigs lost 3 units for a second straight week to settle at a total of 31, down more than half from a recent peak of 66 on Sept. 12, 2014.

Transocean Ltd. this week said it plans to scrap two more offshore rigs. The Swiss company previously reported plans to scrap four floaters and stack four others (OGJ Online, Mar. 19, 2015). It now intends to scrap a total of 18 floaters.

“Offshore drilling markets will continue to deteriorate as rig availability soars and upstream demand weakens,” Moody’s said. “Dayrates and utilization will come under intense pressure and we expect more rig stacking, asset write-downs, delayed rig deliveries, and contract modifications and terminations.

“Paragon Offshore and Hercules Offshore will see the sharpest decline in earnings as contracts expire on their mostly older-generation jack ups,” Moody’s said. “Diamond Offshore Drilling and Transocean have the most older-generation floaters rolling off contracts through 2016.”

Rigs drilling in inland waters, meanwhile, were unchanged from a week ago at 4 units.

Land rig decline shrinking

Lands rigs this week fell 17 units to 993, down 761 year-over-year. Last week, just 18 land rigs were laid down, compared with 45 two weeks ago.

Moody’s noted the land rig count has fallen sharply during early 2015, particularly in high-cost US basins. The US rig count dropped 46% from November 2014 to March 2015, faster than in past downcycles, it said.

“E&P companies are releasing rigs early, unwilling to make long-term commitments, and seeking significant rate reductions, particularly in North American shale plays,” it said. “Helmerich & Payne (H&P) and Pioneer Energy Services both reported early rig releases in 2015, and more drillers will face similar actions in 2015.”

Oil rigs shed 11 units this week after just 12 were laid down last week. The total of 802 is down 696 year-over-year. Gas rigs also shed 11 units, settling at 222. Rigs considered unclassified doubled to 4.

Rigs engaged in horizontal drilling lost 13 units to 799. Since Nov. 21, 573 horizontal units have gone offline. Rigs drilling directionally, meanwhile, edged up a unit to 93.

Canada’s rig count lost 20 units for the second straight week, significantly down from the 80 units lost in each of the preceding 2 weeks. The country’s total of an even 100 is down 77% from the Jan. 16 total of 440.

Oil rigs in Canada halted their precipitous decline dating back to Feb. 13 when they totaled 198. This week’s total of 20 represents a 2-unit gain over last week. Major downward pressure came from gas rigs, instead, which lost 22 units to 80.

Texas, North Dakota lead losses

Texas and North Dakota led the major oil- and gas-producing states in losses with 6 apiece.

The Lone Star State’s total of 456 is down 421 year-over-year and its lowest since Dec. 4, 2009. Texas has now lost 450 units since Nov. 21. The Permian’s rig count was down 5 units this week to 285, down 239 year-over-year. The Eagle Ford was unchanged at 137.

North Dakota’s total of 90 is down 88 year-over-year and the state’s lowest since Mar. 5, 2010. Reflecting that loss, the Williston was also down 6 units, settling at 91, down 94 year-over-year.

“The three leading oil producing US basins—the Permian basin, Williston basin, and Eagle Ford—have experienced the biggest drop in oil rig count, together accounting for 57% of the total US drop, mostly in higher-cost fringe areas outside of the plays’ ‘sweet spots,’” Moody’s tracked.

“On an absolute basis, well over twice as many horizontal rigs have gone idle as vertical rigs, but the vertical rig count has dropped by 61%—mostly from reductions in the Permian and Midcontinent—far more than the 40% drop in horizontal rigs,” it said.

Louisiana continued its slide with a 5-unit drop to 67. The Haynesville shed 3 units to 29. Oklahoma was down 4 units to 129 despite a 4-unit jump in the Ardmore Woodford to 8. Pennsylvania, Ohio, Kansas, and Arkansas each edged down a unit to 50, 27, 12, and 8, respectively.

Unchanged from a week ago were New Mexico at 51, Colorado at 37, Wyoming at 28, and Utah at 8.

West Virginia and Alaska each edged up a unit to 22 and 13, respectively. California led all states with a 2-unit gain to 15.

Contact Matt Zborowski at [email protected].