BHI: US rig count edges down, ends latest surge

The US drilling rig count edged down 1 unit to 568 during the week ended Nov. 11, according to Baker Hughes Inc. data. However, US exploration and production firms continue to add rigs to their fourth-quarter and 2017 drilling plans, disclosed in recent weeks in third-quarter earnings reports.

Last week’s slight loss ends a recent surge that included double-digit increases in 4 of the previous 6 weeks. The count is up 164 units since May 27, and down 1,352 units since the drilling dive commenced following the week ended Dec. 5, 2014.

US oil-directed rigs continued to tick upward, gaining 2 units to 452, an increase of 136 since May 27 and down 1,157 since their recent peak in BHI data on Oct. 10, 2014. Natural gas-directed rigs, also resurgent in recent weeks, offset the oil gain with a 2-unit drop to 115. One rig considered unclassified went offline, halving that count.

The tally of onshore units was flat at 546. Horizontal rigs fell for the first time in 2 months, losing 2 units to 457, up 143 since May 27. Offshore rigs were flat at 21 while those drilling in inland waters halved to 1.

The light activity overall reflected a stagnant week for the Permian basin of West Texas and southeastern New Mexico, the primary catalyst behind the recent drilling rebound. Its count remains at 218, up 84 units since May 13, and more rigs are slated for deployment there by several US independent producers.

The proliferation of new drilling in the basin—apart from last week—is expected to boost overall US crude oil production in 2016 to an average of 8.84 million b/d, the US Energy Information Administration said last week in its Short-Term Energy Outlook (OGJ Online, Nov. 8, 2016). The latest forecast is up more than 100,000 b/d from last month’s forecast.

US crude output in 2017 is expected to average 8.73 million b/d, also more than 100,000 b/d higher than in last month’s forecast. “Recent increases in drilling activity in the Permian region are expected to lead to an increase in production in that area in 2017, partially offsetting declines in other areas of the Lower 48 states,” EIA said.

EIA’s Drilling Productivity Report projects the Permian to be the only region with oil-output increases in October and November.

Permian flat, Eagle Ford up

Texas held its spot atop the major oil- and gas-producing states last week with its second consecutive 6-unit increase. At 268 rigs working, the state’s tally is up 94 units since May 27. Typically bolstered by the Permian, Texas’s upward movement came in part from the Eagle Ford, which rose 3 units to 38.

The only other increase last week came from Ohio and the Utica, each of which gained 1 unit to 15 and 16, respectively.

Six states recorded losses of 1 or 2 units. Oklahoma, New Mexico, Pennsylvania, and Utah each declined a unit to respective totals of 75, 31, 26, and 4. The Marcellus took its first loss since July 29, dropping a unit to 35. The Cana Woodford also edged down a unit, settling at 40.

North Dakota and Alaska each fell 2 units to 35 and 7, respectively. As with its home state, the Williston was down 2 to 35.

Canada, meanwhile, jumped 22 units to 176, the country’s highest tally since Feb. 19. Both oil- and gas-directed rigs have accounted for its recent rebound.

Oil-directed units in Canada gained 13 to 89, up 81 since their bottom in recent BHI data on Apr. 8. Gas-directed units rose 10 to 87, up 63 since their bottom on May 6. Canada’s only rig considered unclassified stopped operations last week.

Permian rigs yet to be deployed

Many of the recent and planned increases affecting the US rig count are coming from major US independents that are sharpening their focus on the Permian, including Pioneer Natural Resources Co., SM Energy Co., QEP Resources Inc., and Apache Corp. (OGJ Online, Nov. 4, 2016).

Among those participating in the recent uptick in Permian-targeted merger and acquisition activity, Concho Resources Inc. plans to allocate 35% of its total 2017 drilling capital to the northern Delaware basin and operate an average of 7 units during the year compared with 4 in 2016, the firm said last week.

In the southern Delaware basin, where Concho made moves to expand its acreage position at the beginning of the year, it plans to direct 25% of its drilling capital and operate an average of 4 rigs in 2017 (OGJ Online, Jan. 19, 2016). In the Midland basin, where the firm last month completed its $1.6-billion deal for 40,000 net acres, it plans to invest 30% of its drilling capital to run an average of 5 units (OGJ Online, Aug. 15, 2016).

Concho currently has 8 horizontal rigs in the Midland basin, 4 in the southern Delaware basin, 4 in the northern Delaware basin, and 2 in the New Mexico Shelf. The firm during the third quarter averaged 17 rigs working, up from 13 in the second quarter, and started drilling or participating in a total of 72 gross (67 operated) wells, completing 46 gross.

Another firm increasing involvement in the Midland basin, Earthstone Energy Inc. last week reported an agreement to merge with Bold Energy III LLC (OGJ Online, Nov. 9, 2016). Bold is currently operating a single-rig drilling program on its Midland basin acreage, and the combined firm may add a second rig after the deal’s completion, which is expected in first-quarter 2017.

Matador Resources Co. during the third quarter continued to operate 3 rigs in the Delaware basin as it has throughout 2016. As of Nov. 1, one of the units was in the Wolf asset area in Loving County, Tex., 1 in the Rustler Breaks asset area in Eddy County, NM, and 1 in the northwestern portion of the firm’s Ranger asset area in Lea County, NM.

The firm may retain a fourth rig after the drilling of a Wolf salt water disposal well. If the plan advances, Matador expects to move the rig back to Rustler Breaks in early December and begin operating 2 units there. The firm intends to continue operating 1 unit in the Wolf area and 1 in Ranger-Arrowhead throughout the remainder of 2016 and 2017.

Eagle Ford, Williston activity

Eagle Ford-focused Sanchez Energy Corp., meanwhile, is currently running 3 rigs companywide and expects to drop to 2 during the fourth quarter. Fellow Texas operator Carrizo Oil & Gas Inc. is operating 2 units in the Eagle Ford and expects to drill 71 gross (67 net) operated wells and complete 73 gross (69 net) operated wells in the play during 2016.

“Given our solid financial position as well as the strong economics generated from our assets at current strip prices, we are currently planning to add a third full-time rig in early 2017, which may be used in both the Eagle Ford shale and Delaware basin,” said SP Johnson IV, Carrizo’s president and chief executive officer.

Halcon Resources Corp. is operating 1 rig in the Fort Berthold area of the Williston and plans to keep it active through 2017. The firm is tentatively planning to add a second operated rig in April 2017 depending on oil prices and other factors. The second rig will initially drill a 5-well pad in the firm’s Williams County, ND, area before moving to the Fort Berthold area.

The firm did not run an operated rig in El Halcon area of the East Texas Eagle Ford during the third quarter. However, the firm anticipates adding a rig back to the area when oil prices improve, and is evaluating the impact of enhanced frac designs on the acreage to improve ultimate recoveries and economics.

Halcon emerged from prepackaged Chapter 11 bankruptcy in September, eliminating $1.8 billion in debt and cutting its annual interest expenses by more than $200 million.

Contact Matt Zborowski at matthewz@ogjonline.com.

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