US oil, gas rig count drops 8 to 830 on week as producers scale back

Denver — The active US rig count declined for the third straight week, falling eight to 830 for the week ending February 12, according to data released Thursday by Enverus, as producers scale back capital expenditures in 2020 amid a depressed pricing environment.

The total US rig count has remained around or below 841 since late December, levels last seen in February 2017 when rig totals were rapidly rising in response to oil prices breaking through stalemated levels below $50/b the year before. WTI crude prices have averaged $55.96/b year to date, trading at $51.28/b on Thursday afternoon.

The gas-rich the Marcellus and Utica shales in Appalachia added two rigs each during the week, bringing totals to 38 and 12, respectively. The increase occurred despite March Henry Hub futures reaching a four-year low of $1.77/MMBtu this week.

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The Haynesville, another gas-rich play, shed one rig to 41. Haynesville rigs are down more than 20% since the start of December, but the current rig count is likely still too high based on forward-looking cash flows.

S&P Global Platts Analytics expects either rigs will continue to decline or completion rates will slow if operators have longer-term rig contracts in place. With drilled-but-uncompleted wells relatively low, replenishing inventory could make sense in such a weak price environment.

Haynesville production could fall by 0.6 Bcf/d by the end of the year, with 2020 average production down approximately 0.3 Bcf/d versus December 2019. In addition, production could begin to post year-over-year declines starting in the fourth quarter of 2020.

Appalachian production has already weakened in 2020, with month-to-date production down 1 Bcf/d versus December 2019 and 1.3 Bcf/d versus November 2019. Assuming rigs remain constant at current levels, 2020 Appalachian production could average up to 0.8 Bcf/d lower than the prior year's exit-rate, according to Platts Analytics.

PERMIAN RIGS DOWN

The oil-rich Permian Basin shed the most rigs of all major basins, dropping by five to 413.

In the Permian, the rig loss recently has hit Reeves County, Texas, the hardest. In 2015, Reeves County started to become the hot development acreage of the Permian, as operators were interested in regions like the Alpine High that promised strong well results in both gas & crude production. However, after sustained depressed Waha prices, the county has continued losing operator interest in 2019 into 2020.

Rigs hit 2018 highs at 93, as operators were seeing low gas-to-oil ratios, but GORs have continued to rise recently, which has caused rigs to reach new lows of 41, with Waha sitting under 1$/MMBtu.

The major three operators experiencing the effects of poor gas economics in Reeves are Occidental, Apache and Concho. The three combined shed 18 rigs over the course of 2019 and currently only operate six active rigs.