API: US drilling up slightly, but still below year-ago counts

US oil and gas drilling activity rebounded somewhat from the previous 3-month period during 2009’s third quarter but remained substantially lower than the comparable 2008 period, the American Petroleum Institute reported.

Nick Snow
OGJ Washington Editor

WASHINGTON, DC, Oct. 13 -- US oil and gas drilling activity rebounded somewhat from the previous 3-month period during 2009’s third quarter but remained substantially lower than the comparable 2008 period, the American Petroleum Institute reported.

API said the estimated 8,856 wells completed during the quarter ended Sept. 30 were 10.2% more than the second quarter’s total but 46% less than the number for 2008’s third quarter. Activity remains at levels not seen since 2003-04, it added in its latest quarterly well completion report.

“The trend of declining well completions is a clear indication that oil and gas companies, which are facing declining earnings and threats of increased taxes, continued to carefully monitor their expenditures,” said Hazem Arafa, director of API’s statistics department.

The report said the estimated number of US exploration wells dropped 59% year-to-year to 327, while the number of development wells fell 46% to 7,430.

Natural gas remained the primary target, with an estimated 4,097 wells completed, 49% fewer than in 2008’s third quarter and the decade’s most severe quarterly decline for gas wells, it indicated. Oil well completions also were well below a year earlier, with the 3,600 estimated wells during the quarter down 44% year-to-year, API said.

It also reported total footage at an estimated 50,716,000 ft during the third quarter, 53% less than during the comparable 2008 period.

Oil resurgence
The report reflected what one Wall Street analyst has noticed. “There’s been a significant resurgence in oil well drilling, primarily in the Permian basin and the Bakken, but gas drilling has remained relatively flat,” said Mark S. Urness, who follows drilling contractors and oilfield services for Calyon Securities (USA) Inc. in New York.

“People have decided to wait and see on gas,” he told OGJ in a telephone interview. “Most of the increased investments have been in oil, and it’s been primarily the small, private operators. Everyone’s waiting for 2010. Things are looking better for then because many bigger independent producers have recapitalized, but right now activity is dominated by smaller operators drilling for oil. That makes sense since a $70/bbl price looks pretty attractive.”

Frederick Lawrence, vice-president of economics and international affairs at the Independent Petroleum Association of America, said that the quarter-to-quarter improvement was “a nice little rebound, but any optimism has to be cautious.”

Lawrence thought it was interesting that unconventional sources such as shales continue to increase their share of total domestic gas production. “If you look at the Baker Hughes rig count, the horizontal rig count is down less than the vertical rig count year-to-year. That emphasizes the role deep gas formations such as the Haynesville and other plays are playing as they become more popular with producers,” he told OGJ on Oct. 13.

Declining earnings and political issues still inordinately affect the upstream part of the oil and gas industry, Lawrence said. “The combination of much lower commodity prices and reduced demand is occurring in tandem with political challenges that the industry is facing during this recession-rebound. We still need to be fairly modest in our near-term expectations based on what economists are saying about the macroeconomy and the return of demand,” he said.

“Longer-term horizons may be probable at this point,” Lawrence said, adding, “With these higher prices, more gas is going into the market than into storage, which is good during these shoulder months since we’ll probably have record inventories going into this winter.”

Contact Nick Snow at nicks@pennwell.com.

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