US oil, gas rig count jumps 12 to 700, at highest level in 20 months: Enverus

The US oil and gas rig count jumped 12 to 700, energy analytics and software company Enverus said Dec. 9, reaching the highest level in 20 months.

Oil-directed rigs posted a gain of 11 for a total of 548, while gas-oriented rigs gained one for a total 152.

The US last posted a total rig level this high the week ended April 1, 2020.

"We're expecting rigs to recover at a [moderate] rate similar to months past through third quarter 2022, at which point rig increases will slow down through 2023," said Taylor Cavey, S&P Global Platts Analytics senior analyst for supply and production. "Budgets have risen with sustained price strength."

"However, it's hard to say what will happen with the recent price correction," he said. "I think operators, when thinking about 2022 budgets, were considering the potential for this to happen or even get worse, so I don't know that we'll see downward revisions to budgets and drilling."

The Eagle Ford of South Texas saw the biggest change for the week ended Dec. 8, jumping three to 53. That is down from its recent high of 60 five weeks ago and down from the low 80s before the pandemic exploded in March 2020.

The Eagle Ford is one of the largest basins with nearly 1.19 million b/d of current oil production and 4.94 Bcf/d of natural gas output, according to S&P Global Platts Analytics. That figure reached roughly 1.7 million b/d of crude output in early 2015 but has never really rebounded to past heights.

Part of the reason for that is that the basin is maturing, and also in the intervening years the Permian Basin began to grow and offered more-productive geologic zones for petroleum exploitation, luring former Eagle Ford players.

Permian rig count remains steady

the Permian, sited in West Texas/New Mexico, was one of three basins that did not add any rigs for the second week in a row. The giant basin, which has oil production of 4.85 million b/d and gas production of just shy of 5 Bcf/d, remained at 290 rigs for the week ended Dec. 8.

The largely gas-prone Marcellus Shale, mostly in Pennsylvania and West Virginia, remained at 36 rigs for a second week, and the Utica Shale wet gas basin, mostly in Ohio, stayed at 12 rigs for a consecutive week.

Three basins added a rig each, pushing the SCOOP-STACK play in Oklahoma to 39 rigs, the Bakken Shale in North Dakota/Montana to 32, and the DJ Basin in Colorado to 16 rigs.

The Haynesville Shale in East Texas/Louisiana lost one rig leaving 53.

Oil prices rise, gas dips

Commodity prices, although lower than their recent highs in November 2021, finished the week ended Dec. 8 mixed as crude rose and gas was down.

WTI averaged $69.33/b, up $2.10, while WTI Midland averaged $69.96/b up $1.96, and Bakken Composite, $68.33/b, up 90 cents.

For natural gas, Henry Hub prices averaged $3.79/MMBtu, down 74 cents, and Dominion South was $3.25/MMBtu, down 79 cents.

"Operators on the oil side are fairly exposed at this point, meaning much of their production is not hedged, which suggests they are optimistic and expect to deploy additional capital to the drill bit," Cavey said. "Gas operators are less exposed, but have hedged at a lower rate than years past."

E&P operators optimistic

OPEC's recent actions to maintain production quotes and then increase output in December echoed E&P operators' optimism and has been interpreted as an "all clear" from the participant that "sees the best real-time demand indicators," namely Saudi Arabia, Evercore ISI analyst Stephen Richardson said in a Dec. 6 investor note.

A bit of fog had hung over the oil patch starting around mid-November as US oil prices dropped from the mid-$80s/b level to around $70/b, mainly from the emerging omicron variant of the coronavirus amid investor caution over the potential consequences of releasing 50 million barrels of crude from the Strategic Petroleum Reserve.

But a "middle ground" that both ExxonMobil and Chevron struck in recent operational and financial updates offered information that allayed concern those majors might signal substantive priority shifts toward their low-carbon businesses, Richardson said.

Instead, the pair said they'll seek to improve their respective existing businesses primarily via mix and capital discipline, he said.

"There is still plenty of holiday cheer to go around," Richardson said. "And, the experience of the last six weeks, if nothing else, has reinforced the 'sit on your hands, cut costs, harvest cash' strategy that is increasingly entrenched across many entities."