US oil, gas rig count plummets 80 rigs to 641 on the week: Enverus

Houston — The US oil and natural gas rig count fell by 80 to 641 over the past week, the biggest decline in more than five years, as the industry sheds rigs and slows activity, rig data provider Enverus said Thursday.

Seventy-five of the rigs that halted operations over the past week, or 93%, were oil-weighted, leaving 511 in the field, while rigs chasing gas fell by five to 130 as demand destruction caused by the coronavirus pandemic and a global price war continued to ravage 2020 upstream budgets and shutter new drilling.

Since March 11, the domestic rig count total is down nearly a quarter, falling 23%, or 194 rigs, from 835.

"The thud you heard was the sound of the US rig count falling flat on its face," said Bob Williams, Enverus' director of content.

The 75 oil rigs was "the biggest one-week decline in recent memory," Williams said.

Among large basins, the biggest single chunk of rig reductions, 40, this week came from the Permian Basin, leaving 334 at work.

"The ongoing collapse has gouged deeper in the Permian, where well breakevens have been among the best," Williams said. "Roughly half of the sidelined rigs were in the Bonespring and Wolfberry oil plays, where ExxonMobil has been the most active operator."

Williams noted ExxonMobil on Tuesday announced a 30% cut in capital spending, but it is not known whether that cut includes operations covered in the latest Enverus weekly rig count.

Multiple rigs were also shut down other plays over the last week. Oklahoma's SCOOP-STACK play lost eight rigs, leaving 26 operational; six rigs were dropped in the Williston Basin of North Dakota/Montana, for a total of 41; while five rigs halted operations in the Eagle Ford Shale of South Texas, leaving 58 at work.

Rigs from gas-prone basins, on the other hand, barely moved. The count for the Marcellus Shale, which is largely located in Pennsylvania, dropped by just two over the week to 36, while the Utica Shale held steady at 10 for a fifth straight week, and the Haynesville Shale of Northwest Louisiana and East Texas gained a rig, making 38 at work.

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DECLINES DURING DOWNTURNS

Rig counts tend to drop rapidly in a price collapse.

In the last downturn that began in late 2014 and lasted about three years, the US rig count tumbled more than 850 rigs in the four months from late October 2014 to late February 2015.

"If the trajectory of cuts is similar to 2015, we'll likely be close to around 315 rigs before year-end," investment bank Tudor Pickering Holt said in a Monday note.

The current downturn has been compared with what Williams called "the long death spiral" of the post-1986 rig counts. But it is different since industry is "vastly more streamlined and efficient today," so the impact is "more brutal," he said.

In a Monday webinar sponsored by investment bank Evercore ISI on the outlook for oil and gas, Richard Spears, managing director of energy consultants Spears & Associates, said the price of drilling a West Texas Permian Basin well declined 18% in the last two weeks of March, and 6%-7% for a Rocky Mountain well.

"That's the most immediate and dramatic decline experienced in the Permian," Spears said. "No prior downward adjustment to activity or pricing has been that swift, not even close."

"The cost of drilling a well for an [exploration and production operator] will get way cheaper in second-quarter 2020, but it still won't make it economical," Spears said.

VOLATILE PRICES

As the pandemic spread across the US and the world during the last couple of months, it savaged demand for oil. The result has been a glut of supply, pulling down crude prices.

From about $46/b on March 5, the WTI oil price fell by half or more in less than 10 days, although it continues to bounce around in the $20s/b.

For the past week, WTI averaged $25.69/b, according to S&P Global Platts Analytics, up $4.69, while WTI Midland averaged $20.05/b, up $5.71, and the Bakken Composite price averaged $16.84/b, up $1.84.

Gas was more stable, with Henry Hub prices averaging $1.62/MMBtu, down 2 cents, while gas at Dominion South averaged $1.34/MMBtu, up 9 cents, the data show.

"This is ... a much faster industry reaction than during the previous US land rig down cycles, and we will likely see continuous downward adjustments of similar magnitude throughout the next couple of months," said Artem Abramov, head of shale research for energy consultancy Rystad Energy.

"The speed of this decline exceeds the initial post-oil-price-crash expectations," Abramov said.