US oil, gas rig count rises one on week to 707: Enverus data

The US oil and gas rig count rose by one on the week to 707, energy analytics and software company Enverus said Jan. 6, as the eight largest domestic plays experienced flattish activity in the first days of 2022.

Oil-directed rigs dropped one for the week ended Jan. 5, leaving 537, while rigs chasing natural gas gained two for a total 170.

"I think it's fair to assume that the lack of change in the last couple weeks can be explained, at least partially, by end-of-year seasonality," Taylor Cavey, senior analyst-supply and production for S&P Global Platts Analytics, said. "[But] we're expecting similar growth to 2021 through this year."

The domestic oil and gas rig count, which started 2021 at 406 rigs, gained an even 300 rigs over the year.

However, "we're starting to see a shift in the rate of rig additions," Cavey said. "Since the beginning of September, majors have increased rigs by 24%, large-cap independents by 17%, small/mid-caps by 19% and privates by 10%. That said, private operators have added the most rigs during this time."

Rig counts within individual basins moved little during the week ended Jan 5, with virtually all ticking up or down a single a rig or remaining the same.

The biggest change came from the gas-prone Haynesville Shale in East Texas/Northwest Louisiana, which added two rigs for a total 65.

Two other basins – the SCOOP-STACK of Oklahoma and the Marcellus Shale largely in Pennsylvania and West Virginia – added one rig. Marcellus rigs now total 38.

But the SCOOP-STACK's rig add pushed that play's total to 40, where it had been twice in late 2021 (once at 41). Apart from that, SCOOP-STACK rig levels haven't been above 40 since the first week of March 2020.

Permian loses a rig

Two other plays shed one rig apiece – the Permian Basin of West Texas/New Mexico and the DJ Basin mostly in Colorado. That left the Permian at 299 rigs and the DJ at 16 rigs.

Three other plays, the Eagle Ford Shale of South Texas, the Bakken Shale of North Dakota/Montana and the Utica Shale mostly sited in Ohio, remained at prior-week activity levels. That left the Eagle Ford at 57 rigs, the Bakken at 32 rigs and the Utica at 10 rigs.

This is the third consecutive week for the Eagle Ford and the Utica at those levels.

The SCOOP-STACK saw a swift ramp in investment during 2017 and 2018 as large operators such as Marathon Oil and Devon Energy pushed to expand in those plays.

"However, high drilling and completion costs and inconsistent well results due to complex geology yielded questionable economics for many operators," analyst Hamp Smith of BTU Analytics, said in a December 2020 blog.

As commodity prices plummeted in 2020 from the coronavirus pandemic, operators moved drilling dollars to more profitable basins such as the Permian. But recent SCOOP-STACK wells continue to break even at higher oil prices than most other basins at $3/MMBtu gas, Smith said.

Better SCOOP-STACK economics

Moreover, current Henry Hub gas prices comfortably above $3/MMBtu "cast a much more flattering glow" on Oklahoma's shale play economics, he said. "Pockets of Oklahoma acreage that contain associated gas offer significantly better economics at higher natural gas prices."

Platts Analytics estimates the STACK at a 30% internal return rate and the SCOOP around 27%. But these are still lower than the Permian's 40%-50% IRRs.

Henry Hub prices currently are below September-November levels in the $4/MMBtu-$5/MMBtu range, but well over the $3/MMBtu threshold, according to Platts estimates.

For the week ended Jan. 5, Henry Hub prices averaged $3.71/MMBtu, up 33 cents, while prices at Dominion South averaged $3.05/MMBtu, up 64 cents.

Oil prices were also up during the same week. WTI averaged $76.98/b, up $1.50, while WTI Midland averaged $77.94/b, up $1.52 and Bakken Composite averaged $76.60/b, up $2.01.

Meanwhile, based on returning crude demand, which has fueled oil price strength, boutique investment bank Evercore ISI sees the upstream sector in the early stages of a "long and strong" multiyear E&P spending upcycle.

Renewed spending increases

"We further believe that the industry will experience a globally coordinated spending upturn for the first time since 2018" this year, Evercore analyst James West said in a Dec. 21 investor note. "Activity growth [will broaden] across the world. In North America, land drilling and pressure pumping markets are tightening faster than many expect as private operators control more of the activity than in the recent past."

West believes the E&P sector will continue to settle into a new normal "in a smaller US land market."

"Privates should continue to increase activity, driving further utilization and pricing increases," he added. "We expect the US land rig count will cross over 600 by the end of the first quarter, while the active frac spread count approaches 275 in the first half of the year."

West was using Baker Hughes' land rig count, which stood at 571 for the second consecutive week ended Dec. 31.

Also, the active frac spread count, as measured by Primary Vision, a company which keeps track of the weekly hydraulic fracturing crew/equipment units in US fields, stood at 234 for the week ended Dec. 31. It has dropped considerably since late November, when it topped 270.