BHI: US rig count down 8 in 8th straight week of losses

Matt Zborowski
Staff Writer

Anchored by a 10-unit drop in oil-directed rigs, the US drilling rig count lost 8 units to settle at 787 rigs working during the week ended Oct. 16, according to data from Baker Hughes Inc.

The overall count-at its new lowest level since May 3, 2002-has now fallen in 8 consecutive weeks, losing 98 units during that time. Compared with this week a year ago, a total of 1,131 units has gone offline.

In its Oil Market Report for October, the International Energy Agency noted that US producers have pulled an increasing number of oil-directed rigs out of service since the brief recovery in active rigs over July and August (OGJ Online, Oct. 13, 2015).

"The sector could be tested further in October as banks reevaluate credit lines that are crucial to operators with little or negative free cash flow," IEA explained. "For the time being, it looks as though banks are maintaining lines, not cutting them, as they need the heavily indebted sector to maintain production to service their debt."

Financial services firm Raymond James & Associates Inc. last week further revised down its projections for the overall rig count, saying it expects a bottom in mid-2016 of 595 units (OGJ Online, Oct. 9, 2015).

Fewer rigs have resulted in fewer wells being drilled, as indicated by RigData's most recent well count, which fell 7% in the third quarter from the second quarter.

"While a significant improvement over the 19% quarter-to-quarter decline seen in Q2, it reflects almost entirely a 346-well gain in the 'Other' category of wells not included in the portfolio of plays we monitor each week," said Bob Williams, RigData director of news and analysis.

Compared with third-quarter 2014, the count is down 55%, or 5,410 wells.

"Under closer examination of the 'Other' category, we do see an uptick of vertical wells in California and Texas driven by operators taking advantage of rebounding oil prices in late Q2 and early Q3 and by collapsing day rates for sub-1,000-hp rigs," Williams explained.

Meanwhile, crude oil production in November from seven major US shale plays is expected to drop 93,000 b/d to 5.12 million b/d, the US Energy Information Administration forecast this week in its latest Drilling Productivity Report (OGJ Online, Oct. 13, 2015).

Continuing a trend that has persisted since the overall declines began in spring, the Eagle Ford is expected to reflect a bulk of the drop, losing 71,000 b/d to 1.37 million b/d. The Bakken is projected to fall 23,000 b/d to 1.16 million b/d and the Niobrara is projected to fall 20,000 b/d to 372,000 b/d.

EIA also forecasts the Permian will continue its growth in November, with a 21,000-b/d rise to 2.03 million b/d.

Fewer oil rigs in US, more in Canada

Now totaling 595, oil-directed rigs are at their lowest level since July 23, 2010, when the shale boom was ramping up. During their 7 straight weeks of declines, 80 oil-directed units have gone offline.

Gas-directed rigs gained 3 units to 192. The only rig considered classified went offline this week.

Land-based rigs dropped 9 units to 751, down 1,096 year-over-year. Rigs engaged in horizontal drilling relinquished 7 units in their 8th consecutive week of losses. They now total 591, down 762 year-over-year.

Directional drilling rigs rose 3 units to 86.

One rig went online offshore Louisiana, bringing the overall US offshore count to 33. Rigs drilling in inland water were unchanged at 3.

Canada's overall rig count edged up a unit for a 2nd straight week and has inched upward for 3 straight weeks. At 181, the country still has 236 fewer rigs working year-over-year. The recent gains reflect a small rise in oil-directed rigs, which this week rose 2 units to 76, still down 155 year-over-year. Gas-directed rigs edged down 1 unit to 105.

The recent uptick offers respite from a painful year for the country's oil and gas industry. Canada's National Energy Board noted this week that the country's 47% drop in its rig count thus far in 2015 makes it "the hardest hit region in the world" on a percentage basis (OGJ Online, Oct. 15, 2015).

"This is likely because many Canadian oil and gas resources tend to be the highest cost production and their development was amongst the first to be halted as oil prices fell," NEB said.