US oil, gas rig count falls six to 674 on week, lowest since November 2021

The US oil and natural gas rig count fell six to 674 for the week ended Dec. 20, S&P Global Commodity Insights data showed, again hitting a 25-month low as analysts appear to be taking a wait-and-see attitude to activity expectations for the new year.

The last time the total rig count was this low was mid-November 2021, an analysis of the data by S&P Global showed Dec. 21. The total rig count is down 196 year on year from 870 for the penultimate week of 2022.

The Permian Basin gained back some rigs lost in the previous week, weighing in at 314 for the week ended Dec. 20, up five. The Permian has been bobbing below 330 rigs since late August. But for the same week in 2022, the big basin stood at 346 rigs. Pre-pandemic, its count was above 400.

In addition, seven of the eight domestic unconventional basins tracked closely by S&P Global either lost a rig or were unchanged.

However, the Eagle Ford Shale was the only basin besides the Permian that gained a rig, up by one to 55.

Shedding one rig each for the week ended Dec. 20 were the gas-prone Haynesville Shale and Marcellus Shale, the oily Williston Basin and the DJ Basin. That left the Haynesville at 54 rigs, the Marcellus at 25, the Williston at 34 and the DJ Basin at 15 rigs.

The SCOOP-STACK and the Utica Shale were each unchanged, leaving those basins respectively at 26 and 10 for the same week.

2023 a year of steady rig decreases

The end of a year often tends to be a little flat to down in rig counts with holidays and down time, but 2023 has generally been a year of greater efficiencies for E&P companies, but dashed hopes for rebounding drilling activity.

The total US oil and gas rig count began the year at 867, and within six weeks had fallen by 23 rigs. By mid-April it had dropped another 59 rigs to 808, and by late July it was almost touching 700.

After squirming for a few weeks, it then dropped below 700 where it after a couple of attempts to pull itself up, the rig count remains under 700 and is still inching down.

However, Evercore ISI oilfield analyst James West noted in his investment bank's 2024 Outlook dated Dec. 11, that land rig contractors appear to be hopeful the situation could reverse in 2024.

"[They] are keeping contract terms short in anticipation for improving activity levels," West wrote. "Commodity prices remain constructive and we believe that private operators will start to add some rigs exiting 2023."

Public upstream operators "likely will wait until budgets reset early in the new year before adding rigs," he said. "Natural gas basins could experience rig additions early in 2024."

"The industry also needs to build back its DUC [drilled but uncompleted well] levels before completion activity increases," he added. "With that said, there is some uncertainty with the North American outlook into 2024 in the sense that the range of outcomes is widening. We expect modest rig count additions for 2024 in US land" of a volume around 20 to 40 rig adds.

DUCs have been dropping since highs in June 2020 during the pandemic. Upstream operators use them to boost production cheaply as drilling costs are already paid for, and only the cost of completing and producing the wells is required.

West also said that following the 2020-2021 pandemic, private E&P operators boosted their capex budgets quicker, while in contrast publicly traded independents instead strengthened their financial positions and prioritized shareholder returns.

"We foresee a potential shift in this trend as private operators begin adopting a more fiscally cautious approach with the rise in service cost inflation," he said. "Although private operators constitute roughly 18% of our estimated U.S. capex, they make up 53% of the rig count. This suggests that overall US spending might exceed our estimations" of a 2.2% increase in capex levels year over year in 2024.

Based on Evercore's analysis, private company US capex levels increased 14.4% in 2023, a steep decrease a 67% increase in 2022. West said the privates' capex growth is expected to further slow down to a 6.8% increase in 2024, compared to a 2.7% increase for independents, while majors should show "more restrained" growth of 0.8% in US spending.