Domestic rig activity is forecast to drop sharply in the coming months unless “something unexpectedly positive happens with oil prices,” noted Cowen & Co. analysts in an industry update today.
Using calculations based on average WTI crude prices between $65-$70/bbl in the first half of the year, Cowen analysts predict a drop of 400-500 domestic rigs in the months ahead from the fourth quarter peak.
“Should this price continue for the whole year we could go well below 1,300 rigs in the second half of 2015. Given modest improvement in the oil price in the second half we forecast a decline in rig activity to about 1,400 rigs in the US in the second half for an average US rig count of 1,515 (down by 18% from our forecast average of 1,855 in 2014). Our 2016 forecast is 1,500,” said the analysts.
With its reduced oil price forecasts to an average of $70 WTI crude and $75 Brent for 2015 and $75 and $80 per barrel, respectively, for 2016, the analysts see capital expenditures on exploration and production projects in North America dropping 25% in 2015 and remaining flat in 2016.
Looking forward, the analysts believe oil prices are part of a two year correction and that "supply and demand will be back in sync by 2017 and an upcycle can begin.”