BHI: US rig count hits all-time low in recorded data

March 21, 2016
The overall weekly US rig count is now at its lowest point in Baker Hughes Inc. data that begins in the 1940s, and perhaps since the infancy of US oil and gas industry in the mid-19th century.

Matt Zborowski
Staff Writer

The overall weekly US rig count is now at its lowest point in Baker Hughes Inc. data that begins in the 1940s, and perhaps since the infancy of US oil and gas industry in the mid-19th century.

BHI reported that the count lost 9 units to 480 during the week ended Mar. 11, officially falling beneath the previous recorded low of 488 on Apr. 23, 1999, reached during the nadir of the 1998-99 industry downturn.

"While there is no consistent series for drilling activity before 1948, we think it likely that to find a lower level of activity would require going back to the 1860s, the early part of the Pennsylvania oil boom," said Paul Hornsell, head of commodities research for Standard Chartered Bank, in a research note published last week (OGJ Online, Mar. 4, 2016).

The inauspicious benchmark is the latest of many suffered by the industry since crude oil prices began their plunge from more than $100/bbl during summer 2014 to less than a third of that value at the beginning of 2016.

The first extended rig-count dive commenced after a recent peak on Dec. 5, 2014 (OGJ Online, Dec. 5, 2014)-when 1,920 units operated in the US-and didn't end until June 26, 2015, falling in 28-consecutive weeks while shedding a total of 1,061 units (OGJ Online, June 26, 2015).

More recently, the count has fallen in 10 straight weeks to begin 2016, and has lost 405 units since its last increase on Aug. 21, 2015, the apex of a modest summer rebound (OGJ Online, Aug. 21, 2015).

The latest total is almost a tenth of the highest-ever weekly US rig count of 4,530 recorded by BHI on Dec. 28, 1981.

US oil output declines play catch-up

The few-month lag between the beginning of the oil-price plunge and the beginning of the rig-count dive was followed by another few-month lag before overall US crude oil production began declining.

In its Short-Term Energy Outlook released this week, the US Energy Information Administration estimates total US crude production has fallen 600,000 b/d since April 2015 to 9.1 million b/d in February, with the entire decline coming from the onshore Lower 48 (OGJ Online, Mar. 8, 2016).

The agency maintains that output will decrease from an average of 9.4 million b/d in 2015 to 8.7 million b/d in 2016, but lowered its forecast from last month for 2017 by 300,000 b/d to 8.2 million b/d.

Production is projected to drop to 8 million b/d in third-quarter 2017, representing a decline of 1.7 million b/d from the April 2015 level, which was the highest monthly output since April 1971.

EIA expects output to begin increasing modestly in fourth-quarter 2017, as productivity improvements, lower breakeven costs, and anticipated oil-price increases are expected to end more than 2 years of declines in the onshore Lower 48.

Also this week, EIA in its Drilling Productivity Report forecast a 106,000-b/d loss from the major shale regions in April to a total of 4.87 million b/d (OGJ Online, Mar. 7, 2016). Showing a decline for the first time in the DPR is the resilient Permian, whose output is projected to drop 4,000 b/d to 2.04 million b/d.

The Eagle Ford is expected to contribute its usual largest share of declines, shedding 58,000 b/d to 1.18 million b/d. The Bakken is anticipated to fall 28,000 b/d to 1.08 million b/d, while the Niobrara is expected to drop 15,000 b/d to 408,000 b/d.

New-well oil production/rig across the seven plays in April is expected to increase by a rig-weighted average of 12 b/d to 528 b/d. The Niobrara is projected to lead the way with a 25-b/d jump to 803 b/d, followed by the Utica with a 14-b/d rise to 324 b/d, Eagle Ford with a 10-b/d increase to 830 b/d, Bakken with a 6-b/d gain to 752 b/d, and Permian with a 6-b/d rise to 444 b/d.

Three straight months of US oil-rig losses

During the week ended Mar. 11, US oil-directed rigs fell for the 12th-consecutive week, shedding 6 units to 386, down 1,223 since their peak in BHI data on Oct. 10, 2014, and their lowest point since Dec. 4, 2009.

Since its last increase on Dec. 18, 2015, the oil-directed count has plunged 155 units.

Gas-directed rigs dropped 3 units to 94, down more than 100 since last fall and their new lowest level in BHI data that dates back to July 1987.

Onshore rigs lost 13 units to 450, down 619 year-over-year. Rigs engaged in horizontal drilling lost 14 units to 375, down 997 since a peak in BHI data on Nov. 21, 2014, and their lowest count since June 5, 2009.

In their biggest rise since Oct. 24, 2014, directional drilling rigs jumped 8 units to 50.

The US offshore count, meanwhile, gained 3 units to 27, with 2 units starting operations in Louisiana waters and, for the first time since last October, 1 in California waters.

One rig drilling in inland waters began working, bringing that total to 3.

New lows for major states, basins

Among the major oil- and gas-producing states, Texas led in declines by a wide margin, tripling last week's total by posting a 12-unit loss to 215, down 743 since a peak in BHI data on Aug. 29, 2008, and the state's lowest count since the 1990s.

The Permian represented half the drop, losing 6 units for the second-straight week to 152, down 416 since a recent peak on Dec. 5, 2014. The Eagle Ford continued its plunge, decreasing 3 units to 43, down 216 since a peak on May 25, 2012. The Granite Wash fell 2 units to 8.

Chevron Corp. said this week during an investor presentation that it plans to add 2 more rigs to its Permian acreage this year, bringing its total in the basin to 7. The firm is one of many to shift its focus to the region even as its rig count shrinks (OGJ Online, Feb. 25, 2016).

Oklahoma lost 3 units to 67, down 142 compared with when it entered 2015 and its lowest point in BHI data that dates back to the 1990s.

New Mexico declined 2 units to 15, down 86 from the beginning of 2015 and also its lowest level in BHI data that dates back to the 1990s.

North Dakota and Ohio each edged down a unit to 32 and 11, respectively. Movement in the Williston and Utica reflected exactly that of their home states. For North Dakota, its count is down 171 units since an all-time high during June 1-8, 2012, and is its lowest since Apr. 20, 2007.

Just as many states posted increases this week, with the one-and-only unit coming online in Utah, a 2-unit increase in Kansas to 9, and 3-unit increases in each of Louisiana and Pennsylvania to 49 and 19, respectively.

Pennsylvania's first increase of the year mirrored a 3-unit rise in the Marcellus to 31, leading the major basins. Reflecting, in part, movement in Kansas, the Mississippian edged up a unit to 8.

Elsewhere this week, BP PLC reported plans to reduce its operated rig count over the next few months at Prudhoe Bay on Alaska's North Slope to 2 from 5. The state's rig count currently stands at 12, unchanged since last week.

Rig-count losses abound internationally

Canada's recent rig-count dive continued during the week by relinquishing 31 units to 98, its new lowest point of the year. The country's total was 250 on Jan. 22. Over the past 5 weeks, the count has plunged 144 units.

Oil-directed rigs drilling in Canada decreased 22 units to 28, also their lowest point of 2016. They've plunged 103 units over the past 5 weeks. Gas-directed rigs shed 9 units to 70.

Reflecting a momentary departure from recent trends both within and beyond its borders, Canada's average count for February was up 19 units to 211, BHI also reported this week. Compared with the February 2015 total, however, the count was down 152 units.

The worldwide tally during February was 1,761, down 130 from the January count and down 1,225 from the February 2015 count. Outside of Canada, every other major world region reported monthly losses.

The largest monthly loss came in the Asia-Pacific region, which dropped 11 units to 182, down 58 year-over-year. Declines came in Australia, down 4 units to 9; offshore China, down 2 units to 25; Indonesia, down 2 units to 18; and Thailand, down 2 units to 16. India, meanwhile, gained 2 units to 99.

Also hit hard during the downturn, Latin America's count fell 6 units in February to 237, down 118 year-over-year. Argentina lost 7 units to 65, and Mexico lost 4 units to 39. Ecuador jumped 3 units to 4, and Venezuela increased 2 units to 69.

Africa also relinquished 6 units, settling at 88, down 44 year-over-year. Nigeria fell 3 units to 6, and Angola fell 2 units to 8.

In the Middle East-the region that has undergone the least amount change to its rig count during the global industry downturn-3 units went offline in February to bring the region's total to 404, down 11 year-over-year.

The biggest Middle Eastern decline came in Egypt, which lost 7 units to 35. Qatar decreased 3 units to 6. Pakistan decreased 2 units to 21. Saudi Arabia jumped 4 units to 128, which is also up 4 year-over-year. Kuwait gained 3 units to 43.

Europe edged down a unit in February to 107, a decline of 26 year-over-year. Three units went offline in Poland, which now tallies 7 rigs working.