BHI: Again mirroring Permian activity, US rig count rises in 17th straight week

The US drilling rig count during the week ended May 12 recorded its 17th consecutive increase, bolstered again by rigs targeting oil, drilling horizontally, and stationed on the Permian basin.

The US drilling rig count during the week ended May 12 recorded its 17th consecutive increase, bolstered again by rigs targeting oil, drilling horizontally, and stationed on the Permian basin.

The overall US tally of rigs gained 8 units to 885, up 481 since its nadir in recent Baker Hughes Inc. data touched during May 20-27, 2016, and its highest level since Aug. 21, 2015. The Permian also was up 8 units this week.

Also up on a 17th consecutive occasion, oil-directed rigs jumped 9 units to 712, up 396 since last May 27 and their highest point since Apr. 17, 2015. Gas-directed rigs edged down a unit to 172, still up 91 since Aug. 26. One rig considered unclassified remains operating.

Land-based rigs rose 7 units to 860, with horizontal rigs rising 8 units to 742, up 428 since last May 20-27. Directional drilling rigs edged down a unit to 66. The tally of rigs drilling in inland waters dropped 1 to 4, while offshore rigs gained 2 units to 21.

The US Energy Information Administration reported that US crude output for the week ended May 5 increased 21,000 b/d to surpass 9.3 million b/d, reflecting increases in the Lower 48 by 16,000 b/d and Alaska by 5,000 b/d.

In its May Short-Term Energy Outlook (STEO) released this week, EIA forecasts US crude oil production in 2017 to average 9.3 million b/d—up from the 9.2 million b/d forecast in last month’s STEO—and almost 10 million b/d in 2018.

US crude output already in April reached its highest level since March 2016, averaging 9.1 million b/d, agency data indicate. With the oil-directed rig count hitting a 2-year high last week, EIA expects that “US oil production will likely rise further in the coming months.”

According to separate data from Rystad Energy, US Lower 48 oil production could increase 390,000 b/d from May to December assuming a West Texas Intermediate price of $50/bbl. The consulting service projects that completion activity is set for a steep expansion throughout the remainder of the year despite growing concerns about service cost inflation in the most active basins.

Since the second half of 2016, the rig-count rebound has been outpacing growth in completion activity, resulting in a buildup of drilled but uncompleted (DUC) wells (OGJ Online, May 11, 2017). Should the prices collapse to $40/bbl or even $30/bbl level, Rystad believes a major portion of those DUCs could still be completed commercially, meaning a dramatic downward shift in market conditions would not lead to a rapid collapse of US oil production.

Can Permian keep it up?

The bulk of US production increases have come from the Permian, where major independent operators such as Anadarko Petroleum Corp. and Apache Corp. have multiplied their rig counts (OGJ Online, May 5, 2017). The basin's 8-unit increase this week brought its total to 357, up 223 units compared with its total on this week a year ago when it hit its low-point in modern BHI data.

With the spike in activity, IHS Markit forecasts that rising service sector costs in the Permian will raise per-well capital expenditures there by more than 15% during 2017 (OGJ Online, May 12, 2017).

“The economics for the Permian are still impressive at a $41/bbl weighted average for a $55/bbl WTI price-projection, but costs are rising, mostly for service sector-related costs of drilling and completion, proppant, sand, and a tightening rig market as utilization rates increase,” said Imre Kugler, IHS Markit senior consultant.

Another common concern given rising output has been whether or not the basin’s midstream capacity can keep up with the additional supply. EIA believes, however, the basin’s pipeline infrastructure is now better equipped to handle new supply than it was in 2014, the tail end of its last production spike.

Several pipelines that came online in recent years—such as Magellan Midstream Partners LP’s BridgeTex pipeline, Sunoco Logistics Partners LP’s Permian Express pipeline, and Plains All American Pipeline LP’s Cactus pipeline—are undergoing expansions expected to be completed later this year, adding 340,000 b/d of capacity.

In addition to expansions of existing pipelines, Enterprise Product Partners LP is building a 450,000-b/d Midland-to-Houston pipeline expected to come online later this year. EIA notes other pipeline expansions are planned for gathering systems and intra-Permian pipeline infrastructure to move increasing volumes of oil to larger pipeline origin points such as Midland.

Drilling activity beyond Permian

Following something of a trend, Texas also was up 8 units this week and now counts 451, up 278 since last May 20-27. The Granite Wash gained a unit to 11.

New drilling outside Texas was light and spread out. North Dakota, Colorado, Ohio, and Wyoming each edged up 1 unit to respective counts of 44, 31, 23, and 23. Reflecting the activity in their home states, the Williston and Utica each rose 1 unit to 44 and 24, respectively. North Dakota and the Williston are both double their levels from last May 27-June 3.

New Mexico and Alaska each lost 1 unit to 55 and 7, respectively. New Mexico is still up 39 units since Apr. 29-May 6, 2016.

Oklahoma fell for a second straight week after hitting a 2-year high, shedding 2 units to 118, still up 64 units since June 24. The Arkoma Woodford and Mississippian each dropped 1 unit to 8 and 6, respectively. The Cana Woodford gained 2 units to 53, up 29 since June 24.

Canada’s seasonal dive that now stretches back 11 weeks continued to shrink, down to just 2 units this week. At 80 rigs working, the country’s count is down 272 units since Feb. 10 when it was near its own 2-year high.

Canada gas-directed rigs fell 4 units to 51, partly offset by oil-directed rigs’ 2-unit rise to 29.

Contact Matt Zborowski at matthewz@ogjonline.com.

More in Drilling & Production