US oil rig count up just 2 as firms ponder second-half activity

July 28, 2017
The US drilling rig count is seesawing between gains and losses.

The US drilling rig count is seesawing between gains and losses.

Baker Hughes’ overall tally of active US drilling rigs for the week ended July 28 increased by 8 to 958. It’s just the second rise of the past 5 weeks for the overall count, which has rebounded resoundingly since the bottom of the drilling downturn on May 20-27, 2016 (OGJ Online, July 21, 2017). Since then, the count has added 554 units.

US oil-directed rigs, the catalyst for overall rig count growth over the past 14 months, added just 2 units this week and now total 766. Over the past 5 weeks, the oil-directed tally has gained just 8 units total compared with 38 during the 5 weeks prior.

Gas-directed rigs, growth of which has also been slow over the past 2 months, jumped 6 units this week to 192, up 111 units since Aug. 26, 2016.

Seven of the 8 units to begin work this week were land-based, with the tally of rigs drilling horizontally adding 7 units to reach 810, up 496 units since May 27, 2016. Rigs drilling horizontally last week posted their first decline in 36 weeks. Rigs drilling directionally rose 2 more units this week to 77.

The US offshore count added 1 unit near Alaska and now totals 24, its highest level since Jan. 20.

A steep drop in Alaska crude oil production, meanwhile, sank overall US production during the week ended July 21, according to data from the US Energy Information Administration. Alaska’s output dropped 54,000 b/d, offsetting a 35,000-b/d gain by the Lower 48. As a result, overall US production fell 19,000 b/d to 9.41 million b/d.

Cash flow drives drilling

While rig count growth has slowed in recent weeks, the drilling outlook remains far more positive compared with late 2014-early 2016 levels. In addition to relatively steadier crude oil prices compared with the volatility of early 2016, EIA this week attributed the extended drilling rebound to better cash flow among US firms.

Operators in the Permian, the source of much of the recent drilling and production increases, have maintained positive cash flow through lower costs, higher productivity, and increased hedging, which might explain the elevated rig count in the region this year despite relatively flat crude prices, EIA said (OGJ Online, July 26, 2017).

Major independents such as Anadarko Petroleum Corp. over the past year have focused their operations on the Permian. Anadarko added 2 rigs in the Delaware basin during the second quarter and ended the quarter with 16 rigs working there. It had 6 operated completions crews deployed in the Delaware at quarter’s end.

However, the dip in crude prices seen in June has caused some operators in the Permian and beyond to reel in their spending even further, which could impact future drilling. Anadarko said this week that it’s slashing its 2017 capital budget by $300 million, citing the need for “lower capital intensity given the volatility of margins realized in this operating environment.”

ConocoPhillips, Hess Corp., and Whiting Petroleum Corp. are among other firms to recently report lower budgets for the year. Whiting plans to drop 1 rig in the Williston and 1 in the DJ basin and run a 4-rig program—all Williston rigs—through yearend.

Permian, Woodford jump again

Permian resilience was evident this week as the basin gained 5 units to 379, an increase of 245 units since its modern low in Baker Hughes data on May 13, 2016. The rise came in spite of a recent slowing in its rig count as well.

The Permian bumped New Mexico atop the leading oil- and gas-producing states in increases this week, as the state rose 4 units to 61, about double its count from last December.

The Cana Woodford increased 3 units to 63, up 39 units since June 24, 2016, and its highest point in Baker Hughes data that go back to February 2011. Oklahoma was up 3 units to 134, an increase of 80 since June 24, 2016. The Granite Wash and Mississippian each gained a unit to 15 and 6, respectively.

Louisiana, Ohio, Wyoming, and West Virginia each edged up a unit to 72, 28, 26, and 14, respectively. Accordingly, the Marcellus and Utica each climbed a unit to respective totals of 46 and 29.

One Utica operator, however, said this week that it’s reducing its involvement in the region. EQT Corp. has suspended a test program there to concentrate on drilling in the Marcellus boosted by its planned acquisition of Rice Energy Inc. (OGJ Online, July 28, 2017).

Texas declined 1 unit to 462, still up 289 units since May 20-27, 2016. The Eagle Ford dropped 2 units to 76, down 10 from the peak of its first-half surge. The Barnett gained a unit to 7. Outside of Texas, the DJ-Niobrara also fell a unit and now totals 29.

In Canada, meanwhile, the rig count continued climbing with a 14-unit increase this week to 220, up 140 units since May 12. Oil-directed rigs jumped 11 units to 129, while gas-directed rose 3 units to 91.

Contact Matt Zborowski at [email protected].