US oil, gas rig count continues to climb as prices remain high: Enverus

Active rig counts in US basins continue to grow with operators adding 11 for the week ending March 16 and 75 year to date, Enverus data showed, as the war in Ukraine continues and crude benchmarks remain above $100/b.

The prolific Permian Basin, where production continues to expand well beyond pre-pandemic volumes, added 12 rigs week over week and has accounted for 40% of all US rig gains year to date. With 330 active rigs, the play now holds its most active rigs since April 2020.

The only other oil-focused play to add a rig week over week was the Denver-Julesburg Basin, which increased by one to 18. It is still 36% less than the number of active rigs prior to the pandemic.

The Permian has climbed to 23% less than the number of pre-pandemic rigs.

Rigs in the gas-focused Marcellus and Haynesville remained static week over week at 41 and 71, respectively. The Haynesville is one of only two oil or gas fields in the US to hold more active rigs now than it did in early 2020. The other is the Utica, which added two rigs week over week to 14. It averaged 11 during the first quarter of 2020.

Value over growth

Despite an environment of high crude prices, oil-focused exploration and production operators have reiterated their commitment to value over growth, according to the latest earnings reports. Most operators met or slightly exceeded their production guidance for the fourth quarter, supported by gains in various operational and production efficiencies.

The majority of US operators built their 2022 capital spend guidance around maintenance mode, aiming to grow their production in the low to mid-single digit rates year on year. The capital spend for 2022 was increased by an average of 23% as operators anticipate cost inflation and increased drilling activity.

Most operators stated a return to meaningful growth will depend on market fundamentals, such as high demand, low global spare capacity and moderate storage levels. Additionally, several operators upped their dividends by anywhere from 15% to 45% and resumed or increased their buyback programs to improve the per-share metrics.

Since the crude price surge due to the war in Ukraine a number of operators have expressed the desire to throttle their production. However, such efforts would likely take time to yield material output growth given the need to secure additional rigs and frac crews, according to S&P Global Commodity Insights.

Although benchmark crude and natural gas prices have dipped slightly week over week they remain elevated well above historical averages. Crude price strength and the war in Ukraine could result in some easing of plans of capital discipline in 2022 and higher production.

Given the recent crude price strength, the high-side potential for oil, associated gas and NGL production has been brought to the forefront of the many supply and demand fundamental concerns. Larger to mid-size US operators have maintained capital discipline to start 2022 although crude prices now surpassing $100/b provide a fair amount of upside to US production during the year, according to S&P Global.