Permian spearheads current, planned US rig count increases

The overall US rig count inched up a single unit for the second consecutive week during the week ended Aug. 5, again bolstered by increased drilling activity in the Permian basin of West Texas and southeastern New Mexico (OGJ Online, July 29, 2016).

The US tally of active rigs now stands at 464 after rising in 9 of the last 10 weeks, according to Baker Hughes Inc. data. The count is now up 60 units since May 27, the week before it recorded its first increase in 41 weeks. Two thirds of that total has come in the Permian alone.

While many US exploration and production firms this week continued to report plans to deploy rigs during the second half, light, sweet crude oil prices dipped below $40/bbl for the first time since April.

In its North American Shale Report, oil and gas consulting service Rystad Energy noted last week that most commercial wells’ breakeven prices are currently $25-30/bbl, reflecting an average 22% year-over-year drop in the average wellhead breakeven price during 2013-16.

Among the major shale regions, the biggest drop is seen in the Permian’s Midland basin, down 33% year-over-year on average during 2014-16. Capital investment has recently poured into the Midland basin, as well as the nearby Delaware basin and Oklahoma STACK play.

Lower 48 oil targeted

The US oil-directed count also increased this week for the ninth time in 10 weeks, gaining 7 units to 381—a rise of 65 units since May 27. Compared with its peak in BHI data on Oct. 10, 2014, the count is now down 1,228 units.

Gas-directed rigs, meanwhile, fell 5 units to 81. One rig considered unclassified halted operations, bringing that tally to 2.

Land-based rigs rose 3 units to 443, reflecting an 8-unit jump in horizontal rigs to 362, up 48 units since May 27. Directional drilling rigs dropped 4 units to 44. Rigs drilling in inland waters were unchanged at 4.

Rising 3 units this week to 217, Texas made up the ground it lost last week after recording its first decrease in 9 weeks. Compared with its May 27 total, the state's count is up 43 units.

More than offsetting losses elsewhere around the state were increases from the Permian and Eagle Ford. The Permian’s 5-unit rise to 177 marked its eighth straight weekly increase. The Eagle Ford’s 4-unit jump brought the South Texas play’s count to a 3-month high. In North Texas, meanwhile, the Barnett lost a unit to 4.

New Mexico rose for the fifth consecutive week, adding 2 units to reach 30, up 11 since July 1. Oklahoma and North Dakota each gained 1 unit to respective totals of 61 and 30. As usual, the Williston accounted for all of North Dakota’s activity.

Colorado, West Virginia, and California each lost a unit to 20, 7, and 6, respectively. The Marcellus and DJ-Niobrara each declined 1 unit to respective totals of 21 and 18. Reflecting an overall 2-unit offshore decline for the US, Louisiana led the major oil- and gas-producing states in losses with 4 units shuttering to 42.

At 17 rigs working, the US offshore count fell to its lowest point since Sept. 24, 2010. Over the past week, yet another agreement was made to cancel a Gulf of Mexico rig contract. The deal between operators ConocoPhillips Co. and Marathon Oil Corp. and rig owner Maersk Drilling AS involving the Maersk Valiant drillship is effective mid-September (OGJ Online, Aug. 2, 2016).

Canada’s rig count increased 3 units to 122, up 86 units since May 6. While oil-directed rigs were static at 60, gas-directed rigs rose 2 units to 60 and rigs considered unclassified doubled to 2.

Firms keen on Midland, Delaware basins

A trend evident over the past couple of weeks in second-quarter earnings reports, the Permian’s Midland and Delaware basins have emerged as attractive drilling targets for E&P firms whose operations have been redefined by current industry economics. A large buildout of midstream infrastructure planned or under way in the Delaware further illustrates the movement toward West Texas and New Mexico.

QEP Resources Inc. and Anadarko Petroleum Corp. last week respectively reported plans to add rigs in the Midland and maintain a higher rig count in the Delaware during the second half. A few weeks earlier, Pioneer Natural Resources Co. said it would increase its horizontal rig count to 17 rigs from 12 in the Midland basin’s northern Spraberry-Wolfcamp during the second half following an acquisition from Devon Energy Corp. (OGJ Online, June 16, 2016).

Additionally, Concho Resources Inc. this week said its tally of active horizontal units in the Delaware has reached 8, split evenly between the northern and southern portions of the play. In the Midland, the firm has 6 horizontal rigs working, while on the New Mexico Shelf the firm has 2. Across its entire operations, the firm currently has 15 units working, up from 13 in the second quarter and 10 in the first quarter.

WPX Energy Inc. is more than doubling its estimate for its net resource potential in the Delaware to 2.4 billion boe from 1.1 billion boe, and raising the projected number of gross drillable locations to 5,500 from 3,600. As such, the firm plans to add a third rig in the Delaware in October to support delineation of the Wolfcamp D and X/Y intervals.

SM Energy Co. plans to focus its second-half Permian drilling activity on the Midland’s Sweetie Peck area, while dropping its lone Eagle Ford rig in August. Including that unit, the firm is currently operating 4 rigs across its acreage, with 2 in the Permian and 1 in the Bakken-Three Forks area. During the second half, SM Energy plans to drill 30 net wells and complete 65 net wells.

Apache Corp. recently added a unit in the Midland, where the firm placed on production 16 gross-operated wells during the second quarter. During the majority of the third quarter and the remainder of the year, Noble Energy Inc. will be operating a total of 4 units onshore in the US, including 2 within the DJ basin and 1 in each of the Delaware and Eagle Ford.

STACK pays in Oklahoma

Slated to boost capital spending, Devon plans to deploy incremental capital in the Delaware basin and STACK, with potential to add as many as 7 operated rigs between the plays in the second half (OGJ Online, Aug. 2, 2016). The additional capital investment is expected to deliver incremental production in early 2017. At the end of the second quarter, Devon across its operations had just 2 rigs working, both of which were in STACK.

Both Devon and Newfield Exploration Co. have taken to STACK, with the latter divesting all of its Texas assets this week in an effort to boost investment in the Oklahoma play (OGJ Online, Aug. 3, 2016). Newfield says it has increased its capital budget for the year to account for two STACK pilots and additional drilling associated with the 42,000 net acres it recently acquired from Chesapeake Energy Corp.

While Marathon Oil is down a rig in the gulf, the firm continues to operate a unit on its STACK acreage recently acquired from PayRock Energy Holdings LLC, and will add 1 incremental unit to the acreage late in the third quarter (OGJ Online, June 20, 2016). The addition will bring consolidated drilling activity to 4 rigs in Oklahoma primarily focused in the STACK. The firm expects 8-10 STACK Meramec wells to sales in the third quarter.

Cimarex Energy Co. also plans to increase its capital investment, with the intention of funding further drilling in the Meramec and accelerate well completions in both the Permian and Midcontinent region. As a result, the firm has increased its operated rig count to 5 for the remainder of the year. Cimarex currently is operating 3 units in the Delaware and plans to maintain that level for the remainder of the year.

Continental Resources Inc. has 11 operated rigs in STACK, with 6 targeting the Meramec formation in Blaine County and 5 targeting the Woodford formation in the Northwest Cana joint development agreement area.

The firm completed 6 net (24 gross) wells in the SCOOP play of Oklahoma in the second quarter while operating an average of 4 units in the play. Continental completed 3 net (25 gross) wells in the Bakken during the quarter also while operating an average of 4 units.

Some gas-related optimism

Across its operating areas, Chesapeake is currently utilizing 10 rigs, 3 of which are in the Eagle Ford, 3 in the Haynesville, 3 in the Midcontinent region, and 1 in the Utica. The firm is planning to operate the 10 units during the remainder of the year and, as a result, plans to drill more than 100 additional wells and place 75 additional wells on production in 2016.

Chesapeake operated an average of 9 units in the second quarter, 8 in the first quarter, and 26 in second-quarter 2015.

Also in the Utica, Gulfport Energy Corp. has 3 operated horizontal rigs drilling, with a fourth contracted to begin operations in September.

“When you combine constructive natural gas fundamentals with our high quality asset base, we would expect to further increase our development pace during 2017, above and beyond the 3-rig program we have running today,” commented Michael G. Moore, Gulfport chief executive officer, in the firm’s Aug. 3 earnings release.

“With the natural gas strip above $3[/MMbtu], we believe our financial position comfortably supports a 6-rig program,” he said. “Should natural gas prices improve further, we would look to expand our rig count beyond a 6-rig scenario.”

Contact Matt Zborowski at matthewz@ogjonline.com.

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