The count has now plunged 988 units since the week ended Dec. 5 (OGJ Online, Dec. 5, 2014). The total of 932 is the lowest since July 17, 2009, and 929 fewer units compared with this week a year ago.
Analysts at Raymond James & Associates Inc., however, have predicted an impending trough in the count as well permitting activity picks up (OGJ Online, Apr. 17, 2015). “All things considered, we believe that we are close to a bottom in the rig count, which is likely to be seen in the next couple of months,” they said earlier this week in an energy update.
RJA tracks the issuance of well permits as a leading indicator of rig count activity. Last week, 912 new permits were issued, jumping more than 200 week-over-week. Including that total, the 4-week average was 820, roughly flat week-over-week “due to typically low permit numbers for the prior two weeks, impacted by the Easter holidays,” RJA said.
“We believe that, excluding the holiday lows seen the past 2 weeks, we have seen 4-week average weekly permits bottom already,” they noted. “Our analysis shows that the bottom was reached a month and a half ago, the week of Mar. 6, indicating that the bottom in the rig count is likely not far off.”
RJA also cautions that while the US rig count may soon hit a bottom, the subsequent recovery may be slow.
Oil rigs plunge again
During the week, oil rigs lost 31 units to 703, down 831 year-over-year and 906 since a recent peak of 1,609 on Oct. 10. Gas rigs, meanwhile, jumped 8 units to 225, representing their largest increase of the year. Rigs considered unclassified edged up a unit to 4.
All units laid down again were land-based, which now total 895, down 898 year-over-year. Rigs engaged in horizontal drilling fell 21 units to 720. Since Nov. 21, 652 horizontal units have gone offline. Rigs drilling directionally, meanwhile, were unchanged at 91.
A 1-unit decline in rigs drilling in inland waters to 3 was offset by a 1-unit rise in offshore rigs to 34.
Regarding worldwide offshore rigs, RJA noted that “2015 has started off at an anemic contracting pace, with E&Ps more focused on reducing the number of rigs and capex rather than signing new rigs.”
The industry is “seeing customers willing to pay significant termination fees [to] cancel contracts for offshore drilling rigs,” RJA said. “Given that the cancellation fee comes as a complete loss to the E&P [company], we view this as a very powerful signal that contracting and tendering will remain weak for a significant period of time.”
RJA expects the worldwide offshore rig count to decline 13% year-over-year in 2016 and another 4% year-over-year in 2017.
In Canada this week, the number of rigs merely edged down a unit to 79, a decline of 361 since Jan. 16. A 4-unit drop in oil rigs to 16 was reduced by a 3-unit drop in gas rigs to 63.
More losses in Texas, North Dakota
Texas again led the losses among major oil- and gas-producing states with a 19-unit decline to 393, down 513 since Nov. 21 and 501 year-over-year. The state’s losses reflected a 12-unit drop in the Permian to 246, down 322 since Dec. 5, and an 8-unit drop in the Eagle Ford to 115, down 103 since Oct. 31.
North Dakota lost 5 units for the second straight week to 78, reflecting a 5-unit drop, also for the second straight week, in the Williston to 79.
The rapidly declining rig counts in major shale plays and subsequent slowly declining production, in most cases, is a reflection of the improvement of drilling efficiency, the subject of much discussion this week in Houston during IHS CERAWeek.
Eldar Saetre, chief executive officer at Statoil ASA, noted that when his company entered the Eagle Ford in 2010, the average well took 52 days to drill, whereas in 2014 it took just 15 days to drill.
Harold Hamm, chief executive officer at Continental Resources Inc., the largest acreage-holder in the Bakken, said drilled but uncompleted (DUC) wells are paying off for Continental, as “60% of drilling is cost completions (OGJ Online, Apr. 22, 2015).”
IHS reported last week that producers operating in the Eagle Ford have built an inventory of nearly 1,400 DUC wells (OGJ Online, Apr. 13, 2015). DUCs can be converted to producing assets for 65% of the cost of a new drill.
Other states to report losses this week were Oklahoma, down 3 units to 115; and New Mexico, West Virginia, and Alaska, each edging down a unit to respective totals of 48, 21, and 11.
Unchanged from a week ago were Ohio at 25, Wyoming at 23, and Utah at 7.
A possible encouraging sign for rig count observers and stakeholders is that six states this week reported gains, albeit small ones. Louisiana continued its rise by adding 2 units to reach a total of 74. Pennsylvania, Colorado, California, Kansas, and Arkansas each edged up a unit to 49, 37, 14, 12, and 9, respectively.
Contact Matt Zborowski at email@example.com.