US oil, gas rig count up 4 on week, Permian totals continue to inch higher: Enverus

The US oil and gas rig count grew four in the week ending March 2, energy analytics and software company Enverus said, as Permian rigs continued to tick up amid oil prices that have risen 45% since the start of 2022.

The Permian Basin of West Texas/southeast New Mexico rose by four rigs to 320, a level not seen since early April 2020 when rig counts were plummeting as both oil demand and crude prices were in free-fall from the coronavirus pandemic.

The Permian still remains more than 100 rigs short of the nearly 430 then working in domestic basins pre-pandemic.

The play comprises the largest US oil basin with about 5.1 million b/d of crude output currently, according to S&P Global Commodity Insights. It also produces significant gas volumes of around 14 Bcf/d.

Throughout the US, rigs chasing oil rose by five to 587, while rigs in natural gas plays fell by two to 173, Enverus said.

"Most expect another 50 or so rigs added this year from here," Jim Wicklund, of investment bank Stephens, Inc., said in his weekly memo to industry Feb. 24. That would equate to additions of about 1.136 rigs per week for the rest of the year. But a look at activity during the nine weeks of 2022 shows a 53-rig increase alone so far this year, or nearly six rigs added per week.

However, another 50 rigs would put total US oil and gas rigs to within shouting distance of the 838 that were working pre-pandemic.

The Baker Hughes North American rig count showed a more aggressive gain of 41 during the last week.

Moreover, the rig count has climbed every one of those nine weeks, suggesting overall confidence owing to buoyant oil prices. WTI has climbed from the mid-$70s/b to well upwards of $100/b from the start of 2022.

For the week ended March 2, WTI averaged $99.17/b, up $7.13; WTI Midland averaged $100.72/b, up $7.48; and Bakken Composite averaged $98.06/b, up $7.39.

Natural gas prices at Henry Hub averaged $4.52/MMBtu, down 4 cents, but prices at Dominion South grew 9 cents on week to $4.13/MMBtu.

Rigs unchanged in four plays

Among seven other large US oil and gas unconventional plays, the Marcellus Shale of mostly Pennsylvania and West Virginia gained two rigs, for a total 40, while the DJ Basin of mostly Colorado gained one, up to 17.

The Haynesville Shale sited in East Texas/Northwest Louisiana shed two rigs, leaving 71.

Four other basins, the Eagle Ford Shale of South Texas, the SCOOP-STACK of Oklahoma, the Williston Basin of North Dakota/Montana and the Utica Shale mostly situated in Ohio, remained the same week on week. That left the Eagle Ford with 63 rigs, the SCOOP-STACK with 43, the Williston with 35, and the Utica with 13.

Spending up

As 2022 wears on, inflation has accounted for a large chunk of the double-digit percentage increases year over year in many upstream producers' 2022 capital budgets. For example, ConocoPhillips raised its capex about 35% this year versus 2021; PDC Energy 20%, and EOG Resources 15%.

James West, in a Feb. 25 investor note, cited a recent IHS Markit's Drilling Costs report that projected dayrate increases for onshore drilling to be 11% worldwide in 2022 year on year. IHS Markit was acquired by S&P Global on March 1.

"The largest percentage gains are expected to occur in North America and the Russian/Caspian markets, with 17% increases," West said. "The Middle East is third with an expected 11% advance in 2022, while the smallest increase will be in Europe with 2%."

And while some of the higher capex will go to some activity increases and replenishing drilled-but-uncompleted well inventories to assure hitting production goals, lofty oil prices not seen since 2014 aren't tempting E&P companies to raise budgets.

"The increased likelihood of more aggressive sanctions on Russian oil and gas exports has prompted the debate over how/if the US shale industry could fill the potential supply void, a question that came up throughout [the Credit Suisse analyst] conference this week," Credit Suisse analyst William Janela said.

"In our view, even if the Biden Administration were to formally/publicly call on US E&Ps to ramp up production, US oil supply is unlikely to respond in a meaningful way given operational/efficiency constraints, and perhaps more importantly, the continued focus on delivering the lower growth/higher cash return model that investors have pushed so hard for and is finally resonating," Janela said in a March 1 investor note.