US drilling nears a 3-year low

By OGJ editors
HOUSTON, Jan. 24 -- US drilling activity continued to plummet, down by 53 rotary rigs this week with 1,515 still working, said Baker Hughes Inc.

That's the lowest activity level since the week ended Feb. 3, 2006, when the US rig count was 1,513 and climbing. Last year at this time, there were 1,747 rotary rigs drilling.

Declines were reported this week in all three categories. Land operations were down 46 rigs to 1,442 working. Inland water activity declined by 3 units to 8, and offshore drilling declined by 4 to 65 rigs in US waters as a whole, including a loss of 3 to 61 in the Gulf of Mexico.

On Jan. 22, the day before the Baker Hughes report, Paul Horsnell at Barclays Capital Inc. in London said, "The latest US rig counts seem to imply a sharp downturn in industry confidence and in the willingness to invest. US drilling activity has fallen by 99 rigs (23%) over the past 4 weeks alone and does appear set to move even lower. In our view, the impression given by the data of an industry which is pulling in its horns rapidly, and which is moving with haste to reexamine, scale-back, and postpone expenditure seems to be an accurate one."

He said, "With the backdrop of a hail of recent announcements on capital expenditure reductions for both conventional and nonconventional oil, together with the continuing move away from investment in alternative energy, we believe that the sharp fall in industry confidence is likely to have a more lasting effect on the health of the supply-side."

Horsnell said, "It tends to be a far longer process to reinstate projects than it is to mothball or cancel them, and the scale of the current industry freeze and confidence loss seems likely to severely affect non-OPEC production. Further, given how much of expenditure in mature areas is directed at trying to contain decline rates, we suspect that those decline rates might now be set for another step up."

Of the rigs still working this week, 1,185 were drilling for natural gas, down 50 from the previous week. Those drilling for oil declined by 6 to 318, while 12 rigs were unclassified. Directional drilling fell by 33 rigs to 290. Horizontal drilling increased by 10 units to 558.

Colorado had the biggest decline, down by 18 to 77 still working this week. Texas lost 16 to 683. Louisiana, Oklahoma, and California each lost 5 rigs for respective counts of 174, 149, and 30. New Mexico declined by 3 to 55, and North Dakota was unchanged at 66. On the positive side, Alaska was up by 2 rigs to 14. Wyoming and Arkansas gained 1 rig each to 59 and 49, respectively.

In other areas of interest, there were 26 rigs working in each of 3 states: Pennsylvania, up by 3; West Virginia, down 3; and Utah, down 4.

Canada's rig count declined by 12 to 426 still drilling this week, compared with a count of 582 during the same period a year ago.