US oil, rig count jumps 14 to 456, as oil fundamental outlooks buoy expectations

Houston — The US oil and gas rig count jumped 14 in the week ending Feb. 3 to 456, rig data provider Enverus said, as oil market fundamentals continued to improve beyond Wall Street expectations.

The biggest weekly change came in the Permian Basin of West Texas/New Mexico, which was up four rigs to 205. The rig count in the US' largest oil-producing basin, with output just shy of 4.3 million b/d, has leaped 16.5%, or 29, over the past four weeks.

For the total US fleet, oil rigs were up nine on week to 335, while gas rigs rose five to 121.

"Strong WTI prices and the recent Henry Hub rally are both setting operators up to profit on new wells being actively drilled through week-on-week growing rig inventory," said Andrew Cooper, a quantitative analyst with the global supply team at S&P Global Platts Analytics. "The Permian continued leading the charge in the rig recovery, with $55/b WTI giving operators some solid cash flow from new wells coming online."

In addition, the Bakken Shale, of North Dakota and Montana, and the Eagle Ford Shale, in South Texas, each added two rigs for totals of 15 and 34, respectively.

"This hinted that some secondary crude plays are entering into a price environment that could generate some drilling interest," Cooper said.

'Back from the dead'

Two operators "came back from the dead," Cooper noted. Apache Corp. and Whiting Petroleum each added one rig during the week, Apache in the Permian and Whiting in the Bakken, Cooper said. Both companies have had zero rigs for most of the past 10 months since the pandemic struck and caused oil prices and the rig count to plunge.

But now in 2021, tighter market fundamentals, including higher demand and lower non-OPEC-plus supplies, "reinforce our convictions in a fast rebalancing oil market," Goldman Sachs said in a Jan. 31 investor note.

"This incoming oil tightness will ... help oil weather financial market uncertainty, and we expect Brent prices to reach $65/bbl by July," the investment bank said. "Growing evidence of supply under-investment in turn leave risks to this price forecast skewed to the upside in 2022."

WTI oil prices, which began last March just shy of $50/b, fell to the low $20s/b by the end of that month and even dipped into the teens in April before heading up again. Prices in afternoon trading Feb. 4 pushed past $56/b.

For the week ended Feb. 3, WTI averaged $53.71/b, up $1 on week; while WTI Midland averaged $54.58/b, up 95 cents; and Bakken Composite averaged $51/b, up $1.32.

Natural gas prices also rose on the week, with Henry Hub averaging $2.84/MMBtu, up 30 cents, and Dominion South $2.59/MMBtu, up 34 cents.

In gas plays, the Marcellus Shale, mostly in Pennsylvania, stayed at 34 rigs for a fourth week, while the Haynesville was up by one rig to 50, a level not seen since December 2019.

Operators drilling for gas were likely hurt in the past few months by a selloff Henry Hub forwards, Cooper said. But, he noted, "Recent cold weather has bumped the prompt month back above $2.80/MMBtu, which should encourage some dry gas drilling in the near term, however, with the price showing significant volatility to weather patterns, some operators are likely staying with their drilling programs for 2021."

The total US rig count, which fell nearly 70% in 2020 from early March to early July, has now recovered nearly a third of the 559 rigs it lost over that period, according to Enverus figures.

Rig count rebound

For January, the domestic rig count averaged 426, up from 407 in December, 379 in November and 339 in October.

Analysts have said the rig count grew rapidly in the months leading up to the end-of-year holiday season in late 2020 to replace or maintain production that was shut-in because of low prices earlier in the year.

But the weekly double-digit increase in rigs seen recently could diminish in the weeks ahead, at least for larger operators, as they stick to pledges of capital discipline despite higher oil prices, Tudor Pickering Holt said this week.

"While we suspect that the collective universe of public E&P operators may now be getting fairly close to their planned first-half 2021 maintenance activity levels, continued momentum on the private side does provide some further near-term horizontal activity upside potential," the boutique energy investment bank said in a Feb. 1 investor note.