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US oil, gas rig count falls 22 to 311, Enverus says, as bottom appears closer

US oil, gas rig count falls 22 to 311, Enverus says, as bottom appears closer
The US oil and gas rig count fell 22 in the week ended June 3 to 311, rig data provider Enervus said, as oil-focused rigs continue to be pulled from fields, but improved prices are for the first time causing some producers to reduce and rethink curtailment plans.

Despite the continued decline in rig counts, the rapid recovery in crude prices in recent weeks to above the $30/b level has prompted some producers to scale back curtailment plans, suggesting the bottom may be in sight for rig count declines.
Front-month NYMEX WTI futures have rallied nearly 275% from April 21, the session after falling into negative territory, and settled at a three-month high $37.29/b on June 3.

Parsley Energy, for example, had earlier intended to shut in as much as 30,000 b/d of Permian Basin oil in May but actual shut-ins reached just 26,000 b/d. The company will restore the “vast majority” of this output in early June, Parsley said in presentation slides released June 1.

“Our channel checks confirm operators are expecting to reverse a majority of shut-in volumes for June … over the coming days and weeks,” investment bank Tudor Pickering Holt said in a June 3 investor note.

“We continue to expect 1 million of US [oil] supply to return in June, with the remaining 750,000 b/d returning by July,” TPH said.

US oil production averaged at 11.2 million b/d in the week ended May 29, US Energy Information Administration weekly estimates showed, down 1.9 million b/d from all-time high 13.1 million b/d in mid-March.

However, the percentage of wells that will be profitable in a $30/b environment is not large. And analysts say some operators that are not best-in-class or still have high costs may still have breakevens in the $40s/b or even $50/b.

Notably the recovery in forward-dated WTI prices has been much less dramatic. The sixth-month contract is up 55% from late April, and year-ahead futures have climbed just 34% over the same period to just under $40/b.

S&P Global Platts Analytics estimates in the Delaware portion of the Permian Basin, 33% of new wells would be profitable at $30/b WTI. In the Bakken, just 4% of new wells would be profitable.

The bulk of the decline in drilling activity in the week was again seen in oil-focused rigs, which dipped 17 to 206, while the number of active gas-focused rigs fell 5 to 105.

The total US oil and gas rig count has slid 63% from its most recent peak in early March, and is down over 70% from year-ago levels.

Rig counts declined in all major oil-focused basins. The Permian basin rig count slid 14 to 157, putting it 283 rigs lower than year-ago levels, while the number of rigs active in the Eagle Ford play dipped three to 14, down 72 on the year.

Drillers idled one rig each in the Denver-Julesburg and Williston basins, putting the total counts there down to seven and 12, respectively.

Rig counts in the gas-focused Haynesville basin continued to show signs of bottoming after climbing by one for a second straight week to 33. SCOOP-STACK operators added one rig for a total of 10.

The gas-focused Marcellus play shed one rig, leaving a total of 27 active, and rig counts in the Utica basin were steady on the week at 11.

US oil major ConocoPhillips said at the RBC Capital Markets’ Global Energy and Power Conference this week that its June curtailments were proceeding as planned, RBC analysts Scott Hanold said. The company added that going forward, shut-in output will be evaluated month by month. ConocoPhillips had forecast 420,000 boe/d net curtailments for June.

Matador Resources will likewise continue with plans to curtail 10%-15% of 71,200 boe/d first-quarter production for June in the western Permian and Eagle Ford Shale basins, Hanold said. And Devon Energy is continuing with plans to cut output by 20,000 boe/d, half of it oil.

Still, prospects for a near-term reversal in output declines are good, Tudor Pickering Holt said.

The rally in crude, improving differentials, and a collapse in contango are “checking all the right boxes” for US upstream operators to reverse shut-in production in June.

“Once production reverses, and assuming WTI is in the $30/b-$40/b range, we would expect upstream producers to start to layer in some incremental completion activity starting in July, although we sense investors may rather the industry wait a bit longer to allow fundamentals to firm further,” the bank said.

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