US oil, gas rigs drop by 11 on week to 857 as oil-directed drilling takes biggest hit

The US oil and gas rig count fell by 11 on the week to 857, as oil directed drilling took the biggest hit in the eight largest domestic basins, according to an S&P Global analysis of data for the week ended Feb. 15.

Oil-directed rigs plummeted by 13 to 659, while natural gas-directed rigs gained two to 198.

Six of the eight basins lost rigs or remained unchanged. Just two basins – the Permian and the gas-weighted Marcellus – were the only plays to add a rig or two each.

The Permian was up two rigs for a total of 362, while the Marcellus gained a rig, for a total 34.

The rig count has been slowly declining for months after hitting its peak of 901 in mid-November 2022. In 2023 it has been in the 860s-870s range but in February periodically dropped into the 850s.

"Rigs have hovered around 860 in February, 11 below the January average of 871 which is interesting," S&P Global Commodity Insights Production Team Manager Matt Andre said.

Biggest drop from 'Other' basins

The biggest weekly rig drop came from the "Other" rigs category which was down roughly seven rigs week on week to 162.

"So I don't see any trend impacting the large oil basins," Andre said. "Keep in mind that even though the rigs are one-week delayed, there is still a chance for revisions."

The "Other" basins are smaller or less-active basins outside the eight large named plays S&P Global closely tracks weekly.

The large weekly drop in rigs may also be an efficiency move as operators have said they can still eke improvements from their operations that allow them to produce more or otherwise optimize their well drilling while using fewer rigs.

That is in keeping with the capital discipline shown and emphatically stressed in recent conference calls by upstream operators which are largely sticking to their 2022 plans with a little extra funding this year to cover inflation and special projects.

Despite the uptick in the gas rig count, drilling of that commodity is being closely watched as the low prices of gas has caused some operators to pull rigs recently in those fields, most of which are found in Appalachia.

But the horizontal rig count is actually higher now than in late 2022 when it mostly hovered in the 160s since September of that year.

Still, earlier this week, Chesapeake Energy said that it would add to rig cuts in the gassy East Texas/Northwest Louisiana Haynesville Shale.

"Given the pullback the past few months in natural gas prices, we have not seen natural gas activity so closely watched in quite some time," Evercore ISI analyst James West said in his latest monthly Onshore Oracle Feb. 23. "It made us think back to the early months of 2011 when the US actually had more active rigs drilling for gas than for oil."

'Whispers' of E&Ps dropping gas rigs

West noted that "Twitter whispers have already started talking about natural gas rigs being dropped and cracks starting to appear in oilfield services pricing."

West also said that while the US land rig count has pulled back, most of that churn has occurred with lower-specification SCR and mechanical rigs drilling vertical and directional wells.

Those operators are focused on returns, he said, especially since several of them have already announced shareholder return frameworks.

And in the pressure pumping market which performs well completions, hydraulic fracturing "spreads" or equipment/crew units remain tight, said West.

"Pumpers see unmet demand for 20-25 frac spreads in today's market," he said. "Any spreads that are released from natural gas basins will be absorbed by the oil basins."

In their recent Q4 conference calls, many of the pumpers noted the higher so-called "frac intensity" which is requiring more pumps at the well site and rebuild cycles occurring at increased frequency.

"We have seen evidence of this given the increase in average size of a frac spread on a well site," said West. "In addition, elongated supply chains will limit the availability of parts and delay replacement of major components."

in a Feb. 21 investor note, investment bank Tudor Pickering Holt said it would be "closely watching" to see if Southwestern Energy, another large gas-weighted upstream operator, "joins in reconsidering activity levels as gas fundamentals weaken."

"Ultimately, the quicker the industry pulls off the band aid on gas-directed drilling, the sooner stocks (not the commodity) may start to find a bottom," TPH said.