BHI: US rig count climbs again as financial outlooks shift

The overall US drilling rig count gained 7 units to 447 during the week ended July 15, according to data collected by Baker Hughes Inc. All but one of the units to come online were oil-directed.

The count has risen in 6 of the last 7 weeks, adding 43 units since its first increase in 41 weeks on June 3. That’s more than the short-lived, modest rebound that occurred during summer 2015 in which the count climbed 28 units between June 19 and Aug. 21.

Compared with the tally for the week ended Dec. 5, 2014, the week before the drilling dive commenced, the count is down 1,473 units.

The recent uptick in drilling activity in the US may reflect falling breakeven costs in tight oil. Research and consulting firm Wood Mackenzie Ltd. estimates that 70% of new drilling in US tight oil plays and pre-final investment decision (FID) conventional oil projects are commercial at Brent crude oil prices below $60/bbl (OGJ Online, July 13, 2016).

Global breakeven costs for tight oil and conventional developments have dropped $19/bbl to the current weighted average of $51/bbl since a peak in 2014 and $8/bbl over the past 12 months, WoodMac says.

BHI last week reported monthly rig count declines during June in every region outside the US and Canada (OGJ Online, July 8, 2016). That followed a May in which rig counts rose in every region but the US and Latin America.

Possibly delaying a second-half global recovery and more pronounced North American recovery is continued lower spending by exploration and production firms. In its midyear spending update published this week, financial services firm Cowen & Co. estimates 2016 global E&P expenditures to fall 24% compared with a 16% decline forecast in its January survey (OGJ Online, July 12, 2016).

The downward revisions are primarily driven by larger spending cuts from North America-focused E&Ps and major international oil companies. Cowen forecasts spending in the US and Canada to decline 45% and 33%, respectively. Outside the US and Canada, Latin America is still the weakest region, with spending forecast to decline 30%.

Cowen expects an increase in global spending next year, however, mainly driven by North America, while international spending remains depressed due to a slower recovery in offshore activity.

Global land recovery in 2017?

A separate forecast from Douglas-Westwood, meanwhile, indicates the global land rig market is set to rebound beginning in 2017 as oil and gas prices recover and operators boost drilling activity.

The research and consulting firm expects demand for high-horsepower, high-specification units to grow, with the number of rigs drilling rated above 1,250 hp increasing at an 11% compound annual growth rate during 2016-20.

“A rise in horizontal drilling in Russia, as well as planned development of unconventional reserves in Saudi Arabia and China, will contribute towards this growth,” the firm explains. “Onshore field developments in Iran and Kuwait are also expected to result in high demand for high-horsepower rigs.”

As the industry looks to improved efficiency, a trend toward the recycling of idle rig components, such as drill pipes and mud motors, has emerged in the North American market, the firm observes. Elsewhere, contractors are eyeing new, alternative markets such as Argentina’s Vaca Muerta region for their high-spec rigs.

Despite the forecast drilling recovery and subsequent growth in the land rig market, Douglas-Westwood notes “neither the capable fleet size nor the number of operational rigs or rigs drilling is expected to reach 2014 levels by 2020.”

US oil, land rigs' current recovery

The tally of US oil-directed rigs during the week ended July 15 rose 6 units to 357, an increase of 41 units since May 27. Compared with its peak in BHI data on Oct. 10, 2014, the total is now down 1,252 units.

Gas-directed rigs edged up a unit to 89. One rig considered unclassified remains operating in the US.

Onshore rigs gained 5 units to 422, reflecting a 7-unit jump in directional drilling rigs to 43. Rigs engaged in horizontal drilling edged up a unit to 344, up 30 units since May 27 and down 1,028 units since a peak in BHI data on Nov. 21, 2014.

Offshore rigs increased for the first time since May 20 after hitting a low not seen since several months after the Deepwater Horizon incident in 2010. Three units started operations off Louisiana, bringing the overall US count to 22. One rig drilling in inland waters went offline, cutting that count to 3.

Canada’s recent climb continued as well this week, with a 14-unit increase to 95. The rise was split between oil- and gas-directed rigs to counts of 44 and 50, respectively. One rig considered unclassified remains operating in Canada.

Canada’s count has risen 59 units since a record low in recent BHI data of 36 rigs working on May 6. Oil-directed rigs have climbed 36 units since Apr. 8.

New Mexico makes biggest jump

The usual hub of weekly oil- and-gas activity shifts among the major states, Texas for this week was supplanted by New Mexico, up 4 units to 25, as the state recording the largest increase during the recent rebound.

Reflecting the increased offshore count, Louisiana ranked second with a 3-unit rise to 46. Texas merely edged up a unit to 202, marking its seventh straight weekly rise. The Lone Star State is now up 29 units since May 27.

The Permian added 2 units, reaching 160. It’s now up 26 units since May 13. The Barnett, meanwhile, plunged 4 units to 5. The Haynesville lost a unit to 16.

In Oklahoma, where the overall count was unchanged, the Cana and Ardmore Woodfords each rose a unit to 29 and 1, respectively.

Colorado and Pennsylvania each gained a unit as well, tallying 20 and 14, respectively. The DJ-Niobrara was up 1 to 16.

North Dakota, West Virginia, Alaska, and Utah each dropped a unit to respective totals of 27, 10, 7, and 3. Accounting for the activity of its home state, the Williston also was down 1 to 27.

Contact Matt Zborowski at matthewz@ogjonline.com.

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