BHI: US rig count falls for 34th time in 36 weeks, but stabilization seen

The US drilling rig count declined 11 units to 420 rigs working during the week ended Apr. 29, according to data compiled by Baker Hughes Inc.

The US drilling rig count declined 11 units to 420 rigs working during the week ended Apr. 29, according to data compiled by Baker Hughes Inc.

The count has now fallen in 19 straight weeks, and in 34 of the past 36 weeks (OGJ Online, Apr. 22, 2016). Since the overall drilling dive commenced following the week ended Dec. 5, 2014, the count has fallen 1,500 units (OGJ Online, Dec. 5, 2014).

"In the second quarter, we forecast the North America rig count to fall 30% compared to the first quarter average,” noted Martin Craighead, BHI chairman and chief executive officer, in the firm’s first-quarter earnings report this week (OGJ Online, Jan. 29, 2016).

“For the second half of the year, we project the US rig count will begin to stabilize, although we do not expect activity to meaningfully increase in 2016,” he said. “Conversely, the international rig count is predicted to drop steadily through the end of the year as we see limited new projects in the pipeline.”

The oil field services firm posted a $981 million net loss in the first quarter in part due to its proposed merger with Halliburton Co., which the US Department of Justice recently sued to block (OGJ Online, Apr. 6, 2016).

Houston-based onshore drilling contractor Patterson-UTI Energy Inc. during the first quarter averaged 71 rigs in the US and 3 in Canada, compared with its fourth-quarter 2015 average of 88 rigs in US and 3 in Canada.

During April, the firm expects to average 56 units in the US and in Canada expects “a minimal number of operating days due to the industry downturn and spring breakup,” explained Andy Hendricks, Patterson-UTI chief executive officer.

"We believe the US rig count is beginning to stabilize as crude oil prices have improved from the cyclical lows reached in the first quarter,” said Mark S. Siegel, chairman of Patterson-UTI. “The outlook for crude oil prices remains uncertain with numerous economic and geopolitical concerns. For this reason, visibility into the timing of a recovery remains limited, and we do not believe current oil prices in the mid-$40s are sufficient to support a meaningful increase in US drilling activity."

Patterson-UTI recorded a net loss of $70.5 million for the first quarter, compared with net income of $9.1 million in first-quarter 2015.

“Despite limited visibility into a recovery, we remain optimistic about a recovery in our cyclical industry,” Siegel said. “The severe downturn in the rig count has brought the US rig count to the lowest level in more than 65 years. We believe this unprecedented low level of US drilling activity will further reduce US oil production and help to balance oil supply and demand.”

The US Energy Information Administration reported this week that US crude oil production fell 15,000 b/d during the week ended Apr. 22 to 8.94 million b/d—its lowest level since October 2014 (OGJ Online, Apr. 28, 2016).

More oil rigs go down

The US oil-directed count lost 11 units this week to 332, down 1,277 since its peak in BHI data on Oct. 10, 2014, and its lowest level since Nov. 6, 2009. The current count remains well-above the 2008-09 downturn’s nadir of 179 touched on June 5, 2009.

Gas-directed rigs dropped a unit to 87, representing their new low point in BHI data. One rig considered unclassified began operations this week.

All but one of the units to go offline in the US were land-based, bringing the onshore count to 391, down 477 year-over-year. Rigs engaged in horizontal drilling fell 8 units to 324, down 1,048 since a peak in BHI data on Nov. 21, 2014, and their lowest count since Dec. 1, 2006. Directional drilling rigs were down 2 to 46.

One rig halted operations offshore Texas, cutting the state’s offshore count in half and bringing the overall US offshore total to 25. Rigs drilling in inland waters were unchanged at 4.

In another signal of the dim market outlook for offshore drillers, Fitch Ratings noted on Apr. 27 that Ocean Rig UDW Inc.’s recently announced acquisition of a deepwater drillship at less than 10% of its newbuild cost established a new offshore rig valuation low (OGJ Online, Apr. 27, 2016).

Canada’s count resumed its decline this week after sitting unchanged last week, shedding 3 units to 37, down 213 since Jan. 22 and the latest of decades-long lows. Oil-directed rigs lost 2 units to 8, equaling their recent low; while gas-directed rigs dropped a unit to 26, representing their newest recent bottom.

Oklahoma, New Mexico lead losses

Giving Texas a breather from its regular perch atop the major oil- and gas-producing states in weekly losses, neighbors Oklahoma and New Mexico each lost 3 units this week to settle at respective totals of 60 and 16.

Oklahoma’s new total is down 149 units compared with when it entered 2015, and the state’s lowest point in BHI data dating back to the 1990s. The decline in New Mexico’s count is its first since Mar. 18, when it hit its bottom in BHI data dating back to the 1990s.

The Cana Woodford decreased 2 units to 27, while the Arkoma Woodford dropped a unit to 2.

Texas, Louisiana, West Virginia, and Kansas each lost 2 units to 185, 45, 10, and 4, respectively. For Texas, still a hub of activity, its count is down 773 units since a peak in BHI data on Aug. 29, 2008, and the state’s lowest level since the 1990s. Louisiana’s count of 23 onshore rigs and 22 offshore rigs equals its lowest level in BHI data dating back to the 1990s.

The Eagle Ford dropped 3 units to 37, down 222 since a peak on May 25, 2012. The Permian decreased 2 units to 134, down 434 since a recent peak on Dec. 5, 2014. The Granite Wash decreased a unit to 3, while the Barnett increased a unit to 6.

The Marcellus declined 2 units to 26.

Colorado was the only other state to record movement, edging down a unit to 16. The DJ-Niobrara lost a unit to 14.

E&Ps’ drilling activity

Several first-quarter earnings reports were released this week by US exploration and production firms, giving insight into their current and future drilling activity.

Pioneer Natural Resources Co. said it expects to add 5-10 horizontal drilling rigs when the price of oil recovers to $50/bbl and “the outlook for oil supply-demand fundamentals is positive.”

PNR currently is operating 12 horizontal rigs in the northern Spraberry-Wolfcamp and plans to maintain that level based on favorable well returns in the area (OGJ Online, Apr. 26, 2016). The firm’s 2 horizontal rigs working in the southern Wolfcamp joint venture area are expected to be terminated by the end of June.

QEP Resources Inc. is ramping down from 9 operated units at the end of 2015 to 3-4 operated units for the remainder of this year, with one each of its Pinedale, Williston, and Permian acreage.

At yearend 2015, the firm had 3 rigs running in each of the Pinedale and the South Antelope section of the Williston, 2 horizontal units in the Permian, and 1 in the Uinta, the latter of which has stopped working.

Hess Corp. said it operated 4 rigs from the Bakken in the first quarter and brought 31 gross operated wells on production (OGJ Online, Apr. 27, 2016). In the Utica, 1 company-contracted unit operated in the quarter and 9 wells were brought online. That rig has since been released and no further drilling activity is planned in 2016.

Whiting Petroleum Corp. said it will continue to run 2 rigs in the Bakken while adding a completion crew.

ConocoPhillips said its Lower 48 operations transitioned from 13 operated rigs at yearend 2015 to 3 in April (OGJ Online, Apr. 28, 2016). Marcellus and Midcontinent producer Range Resources Corp. expects to average 3 units running throughout 2016.

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