The total US rig count, which on Friday stood at 476, is now at
its lowest point ever in the 67-year history of the Baker Hughes
numbers, according to data released by the oilfield service company.
That is down by four from last week and down from 1,069 working the
same week in 2015 and a recent peak of 1,931 in late 2014. The
previous low was 488 in April 1999, Baker Hughes records show.
Meanwhile, the US oil rig count posted its first gain in three
months, rising by one to 387 amid speculation that a recent rally in
crude prices could signal that a long-awaited industry turnaround
may be at hand.
The 387 oil rigs this week were down 53% from 825 the same week a
year ago, and a recent peak of 1,607 in late 2014.
Also, the Eagle Ford Shale in south Texas, one of the US' largest
oil plays, gained three rigs this week to 40, although this was
about a third of the 122 rigs employed there the same week in 2015,
Baker Hughes data show.
"I think we're close to the bottom" of the down cycle, Griffin
Securities analyst Kevin Simpson said, although he added he did not
expect a pickup in drilling "quite this early."
"Companies have obviously scaled their operations to a lower price
than we are at now," and are cautiously watching US and
international production and demand estimates for signs of market
balance, Simpson said.
Oil prices that began sliding in mid-2014 from $100/b and reached
the mid-to-high $20s/b earlier this year have now picked up to
around the $40/b level.
On Friday, front-month NYMEX crude futures settled down 76 cents to
$39.44/b. The same day, NYMEX futures for March 2017 settled down 20
cents to $44.79/b.
The rig count has fallen steeply since the beginning of this year as
production companies slashed capital budgets in response to oil
prices that briefly dropped into the $20s/b in January. For example,
the year began with nearly 700 total rigs but dropped to 664 the
first week and ended January with 619.
Capital budgets have dropped by 40% to 50% on average, and by even
more for some operators.
"Pricing pressure continues ... as the companies cannot re-size fast
enough and don't want to inhibit their ability to respond to the
inevitable upturn," Evercore ISI analyst James West said in an
investor note last week.
Most oilfield service executives appear to "have progressed to the
final stage of grief--acceptance," West said. "Whereas E&P
[companies] remain trapped in the denial stage."
Simpson said that despite the net one-rig gain for US oil rigs, he
expects the rig count may go "somewhat lower."
But when companies begin adding rigs, they will most likely work on
their inventories of drilled but uncompleted wells, popularly called
DUCs, which they built up over the last year or so as oilfield
service costs came down. Operators did not complete the wells,
though, because they did not want to sell some of their best oil
into a low-priced market.
"We're not going to see any meaningful flow of capital come back
into the sector until the spring redeterminations" of recalculated
bank borrowing bases that begins next month, Simpson said.
"The first incremental capital spent will really be on the DUCs," he
said. "That's your fastest source of cash flow."
In the two other large US basins this week, rig dropoffs were
minimal.
The Permian Basin in West Texas and New Mexico was flat at 150 this
week, although down from 285 the same week a year ago. And the
Williston Basin, where the big Bakken Shale is located, fell off by
one rig to 31, down from 99 rigs during the same week in 2015.
--Starr Spencer,
starr.spencer@platts.com
--Edited by Lisa Miller,
lisa.miller@platts.com
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