US oil, gas rig count rises for first time in over 4 months, up 9 on week: Enverus
After more than four months of weekly decreases, the US oil and gas rig count rose by nine to a net 288 the week ending July 15, rig data provider Enverus said, signalling a a widely awaited trough to a difficult year for the upstream industry grappling with the coronavirus and its devastation of crude demand.
The rise in rig activity marked a cessation of weekly rig count decreases which from early March to July reached a total loss of nearly 560 rigs from domestic fields.
For the week ended July 15, oil rigs rose by 10 on week to 202, while rigs chasing natural gas fell by one to 86.
Rigs rose nominally across most of the largest basins, although they dropped by two in the Permian Basin, the US’ biggest petroleum play, leaving 131. Also shedding two rigs was the Utica Shale, mostly found in Ohio, leaving seven rigs.
The Eagle Ford Shale of South Texas and the SCOOP/STACK play of Oklahoma gained two rigs each, for totals of 12 and 10, respectively.
The Williston Basin of North Dakota/Montana (12 rigs), the Haynesville Shale of East Texas/Northwest Louisiana (34 rigs), and the Marcellus Basin mostly in Pennsylvania (28 rigs) all gained one rig each.
Permian rig losses likely from contract expirations
Matt Andre, analyst for S&P Global Platts Analytics, said the continued rig decline in the Permian is likely a result of rig contracts rolling off.
“But all non-Permian major oil basins have apparently stabilized, that is, stopped declining for the most part,” Andre said. “My thoughts are to watch rigs in the oil-rich plays, especially the Permian, to see when things pick back up.”
All major oil basins have been severely affected by rig reductions since mid-March. The Permian at its lowest was down 297 rigs, or 69%, over the four-month period, while the Bakken was down 41 rigs, or 79%, and the Eagle Ford was down 65 rigs, or 87%.
Oil prices were slightly down on week, with WTI averaging $40.35/b, down 35 cents; WTI Midland averaging $40.79/b, down 47 cents; and the Bakken Composite averaging $35.91/b, down 41 cents.
For natural gas, prices at Henry Hub averaged $1.74/MMBtu, up 5 cents, while at Dominion South the average was $1.29/MMBtu, down 7 cents.
James Williams, president of petroleum consultancy WTRG Economics, noted unconventional wells, which make up the bulk of new US drilling, have high decline rates–often 70% the first year–and require constant drilling and completions to maintain production.
“Realistically, looking forward for the next three, four, five months, the rig count is insufficient to maintain production, and, right now, the rig count is below the level that could maintain production,” Williams said.
“So, we’ll have operators drilling to maintain production, and probably see the ratio of completions to rigs higher than normal, essentially depending on OPEC to keep prices in the $40/b range” for WTI, which the global producers appear willing to do, he added. “But we’re definitely going to get more drilling” in the near-term.
Frac crew recovery pauses
According to an S&P Global Platts Analytics Spotlight report July 13, the recovery in hydraulic fracturing crews, or frac crews, has paused.
After hitting bottom at 45 units in mid-May, crew totals have been oscillating between 60 to 80 units since late June, Platts Analytics said.
Frac crews are a significant indicator of the state of the oil patch, as they complete wells and ready them for production.
“We’re thinking rigs will stay relatively low while frac crews pick up to bring DUCs [drilled but uncompleted wells] online in second-half 2020,” Andre said.
Echoing the sentiment, Credit Suisse analyst Bill Featherston said in a July 14 investor note that “completion activity should begin to recover in Q3 2020.”
The current change from months of a steady drip of rig removals from US fields comes just ahead of second-quarter upstream conference calls which begin next week. Analysts expect the calls to focus chiefly on second-half outlooks for production and activity and preliminary glimpses into 2021 plans and spending.