US oil, gas rig count jumps 9 to 528, with activity hike in smaller basins: Enverus
The US oil and natural gas rig count jumped nine to 528 in the week ending April 7, rig data provider Enverus said, as drilling activity pulled back slightly in the giant Permian Basin but increased in a handful of smaller basins.
The Eagle Ford Shale in South Texas gained two rigs from the previous week for a total 43. The SCOOP/STACK of Oklahoma (19 rigs), the Bakken Shale (15) in North Dakota and Montana, the DJ Basin (14) in Colorado and the Utica Shale (13), mostly in Ohio, each gained a rig.
The Permian, sited in West Texas and New Mexico, lost a rig during the week, leaving 235.
Horizontal rigs that typically “move the needle” in terms of US shale production was flat week on week at 420, said Andrew Cooper, quantitative US supply analyst with S&P Global Platts Analytics.
Cooper added Permian rigs “appeared to flip-flop from the Midland to the Delaware Basin this week,” with some rigs shifting from the Permian’s eastern to the western sub-basin.
The majority of rigs added in the past week were in basins other than the eight largest shale plays and were for vertical wells that commonly have initial production rates much lower than horizontal wells, Cooper said. Operators in those basins usually are smaller companies.
Oil rigs at highest level in a year
The past week was the first time the oil rig count cracked the 400-mark since mid-April 2020, when upstream operators were shedding rigs after a steep oil price drop in early March as the pandemic hit the market. The nationwide total rig count reached 838 in the first week of March, but plummeted 67% in the following four months before starting to slowly inch back up.
So far, the US fleet has regained 249 rigs since the fall from March 2000, less than half the 559 it lost.
Investment bank Goldman Sachs expects the total US oil and gas rig count to expand by an incremental 65-85 rigs by year-end 2021, with the “most upside” in the Permian at an incremental 35-45 rigs from the current count.
The investment bank also sees five to 10 incremental rigs in the Eagle Ford Shale by year-end 2021, three to five incremental rigs in the DJ-Niobrara, two to three incremental rigs in the Haynesville Shale, and one to two incremental rigs in the SCOOP/STACK.
One interesting anticipated Permian rig reduction, according to Evercore ISI analyst James West, will be the planned cutback in drilling for DoublePoint Energy, a small privately held operator being acquired by giant public Pioneer Natural Resources.
DoublePoint was in a substantial (30%/year) production growth mode, but Pioneer plans to cut the small operator’s seven rigs to five by year’s end as part of its own disciplined growth mode of 5%/year. The transaction should close in mid-to-late Q2.
“It will be interesting to see how a public company espousing capital discipline absorbs a private [player] operating under a different set of strategic objectives,” West said in an April 5 investor note.
2021 looks ‘very good’
Overall, 2021 looks “very good” for US E&P companies, said Nicholas Cacchione, an analyst with consultancy RBN Energy.
“With the economy expected in recovery mode and travel poised to rebound, futures markets are indicating that oil and gas prices will remain strong throughout the rest of the year,” Cacchione said in an April 7 industry note.
Cacchione expects E&P investment will be flat to slightly lower in 2021 after declining 50% last year, but not necessarily from less activity.
Instead, “this underscores the keen focus that we believe E&Ps will have on costs this year, given that the sector has debt to repay in order to repair impairment-ravaged balance sheets,” he said.
Oil and gas prices lost some ground in the week ended April 7, according to S&P Global Platts data.
WTI prices averaged $59.81/b for the week, down 34 cents; WTI Midland averaged $60.19/b, down 35 cents; and the Bakken Composite averaged $59.92/b, down 36 cents.
Gas prices at Henry Hub averaged $2.39/MMBtu, down 8 cents, and averaged $1.82/MMBtu at Dominion South, down 2 cents.