The US oil rig count dropped by double-digits for a second
consecutive week, Baker Hughes said on Friday, as analysts scrambled
to revise projections of how low the figure could dip and what it
means for domestic crude output.
The oil rig count fell to 362 for the week ended April 1, down by 10
from the previous week and 47% lower from 679 in the same week a
year ago.
The rig declines were reported as crude oil dropped from a recent
rally to levels at or near $40/b but has now stepped back toward the
mid-$30s/b.
On Friday, NYMEX crude futures settled down $1.55 at $36.79/b.
Last week the oil rig count plummeted by 15 rigs, following
similar or greater numbers of rig declines over several weeks
starting in late January.
In the last 15 weeks, the rig count has dropped every week but one.
During that week, in mid-March, it rose by just one before
continuing to decline.
Industry-watchers widely predict a trough for US drilling activity
in second quarter or around mid-year.
"With a re-acceleration in the US land rig count decline exacerbated
by abrupt work stoppages in several major international markets such
as Mexico, Brazil and West Africa, the capex bottom is increasingly
near," Evercore ISI analyst James West said in his latest Global Oil
Patch Weekly report.
West anticipates a bottom for US activity in Q2 "with international
E&P spending sliding into year-end."
MASSIVE COST CUTS
Wells Fargo analyst Jud Bailey, who met with a handful of oilfield
service companies last week, said in a Thursday investor note some
smaller upstream operators "have already hit rock bottom in terms of
rig count."
"One of the more notable themes from our meetings ... is the deeper,
structural changes being made to organizational structures as the
industry tries to right-size itself," Bailey said.
Oilfield service companies have made massive cost cuts in the last
12 to 15 months as they accommodated upstream customers by making
price concessions to help them operate through the downturn, he
said. But changes currently being envisioned may have a
longer-lasting structural impact.
"Most of the changes are to reverse a series of '$100 oil' decisions
made in the last 10 years that were in response to widespread growth
opportunities and customer requests," he added.
For now, despite a relatively large-scale idling of rigs--the oil
rig count has declined nearly 78% from a peak of 1,609 in late
2014--domestic crude production declines have been sluggish as oil
output remains near 9 million b/d, according to US Energy
Information Administration estimates.
But energy investment bank Tudor Pickering Holt noted in its daily
investor note on Friday that over the past three months, onshore
Lower 48 production has declined 225,000 b/d or 75,000 b/d per
month.
"And the rig count continues to fall," TPH said. "For those who
might suggest US oil supply from shales has been resilient, we'd
point to the scoreboard that reads DECLINE 256 and GROWTH 0."
"Depletion may have once again become the 'forgotten factor,' but
the data show the laws of nature are being enforced," TPH added.
Earlier in the week, the bank revised its US total rig count
forecast to average less than 400 this year compared to an earlier
assumption of 670. Last Friday, the total US Baker Hughes rig count
stood at 450, about half the 905 this week a year ago.
The total US rig count started 2016 at 664.
In tandem with its lower rig count assumptions for 2016, TPH revised
down its domestic production decline estimate this year. The bank
projects year-on-year 2016 output declines increasing by about 50%
year-to-year to 760,000 b/d and 2017 declines jumping over 70% to
520,000 b/d.
But it believes industry will be back in growth mode in 2018. In
most of the US' larger basins this week, the oil rig count slipped a
bit or remained the same, although the Eagle Ford Shale of south
Texas gained two rigs to 39 this week, down from 91 during this week
in 2015.
But both the Permian Basin of West Texas and New Mexico and the
Williston Basin in North Dakota and Montana each lost two oil rigs
this week.
The Permian, the US' most active basin, inched down to 143 oil rigs.
That was also down from 235 the same week last year. And the
Williston Basin, where the massive Bakken Shale resides, slid to 29
oil rigs on Friday. That is less than half its 80 rigs a year ago
this week.
--Starr Spencer,
starr.spencer@platts.com
--Edited by Richard Rubin,
richard.rubin@platts.com
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