US oil, gas rig count slips 3 on week to 323, ending two weeks of sizable gains: Enverus

Houston — The US oil and gas rig count slipped by three to 323 on the week, rig data provider Enverus said Oct. 8, ending two consecutive weeks of sizable gains as activity slowed early in the final quarter of the year.

The small weekly decline broke a five-week tranche of rig additions that had boosted the domestic fleet more than 15% and accounted for the bulk of increases since the July trough of 279. For the week ended Sept. 30, the rig count jumped 18, on top of 15 the previous week.

The most recent week's decline, and then some, came from rigs chasing oil. These fell by six to 228, while gas-weighted rigs were up three to 95, Enverus said.

"We don't expect significant rig growth every week," analyst Matt Andre, of S&P Global Platts Analytics, said. "Prices are still modest and don't really call for operators to add double-digit rigs every week."

Over the long term, US rig fleet increases "will most likely be slow and steady, compared to how fast [they retreated] in Q2," Andre said.

Domestic basins in the past week represented a checkerboard of mostly stable activity with rig movements mostly in gassy basins. The Haynesville Shale in Northwest Louisiana/East Texas rose two rigs to 38, while the Marcellus Shale largely sited in Pennsylvania fell two, leaving 25.

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Permian rigs stable at 139

The Eagle Ford Shale in South Texas rose one to 18 on the week, while the DJ Basin in Colorado fell by one to four. The Permian Basin of West Texas/New Mexico was stable at 139, as were the SCOOP/STACK play in Oklahoma, Bakken Shale of North Dakota/Montana, and Utica Shale mostly in Ohio, respectively at 12, 11 and seven rigs.

Starting in early March 2020, the domestic rig count, along with oil prices, began to plummet as the coronavirus pandemic accelerated. The US rig count, which stood at 838 the first week of March, fell more than 65% over the next four months before ticking back up.

WTI oil prices of around $46/b in early March eventually fell briefly below the teens before slowly struggling upwards. Since late June, they have mostly hovered around $40/b.

For the week ended Oct. 7, WTI averaged $39.13/b, down 94 cents, while WTI Midland averaged $39.17/b, down $1.05 and Bakken Composite, $35.91/b, down 93 cents.

Natural gas prices for that same period averaged $1.73/MMBtu at Henry Hub, down 7 cents, and 93 cents/MMBtu at Dominion South, down 22 cents.

Analyst sentiment echoed upstream operators' cautious moves.

E&Ps should cap growth, capex in 2021

"With so much uncertainty in the world, we wholeheartedly agree ... that the industry needs to cap growth at most at maintenance capital in 2021, assuming operators are capable of doing so within cash flow, post-dividend," investment bank Tudor Pickering Holt said in its daily investor note Oct. 2.

Underinvestment, reinforced by a belief in peak demand and reset priorities of capital markets, will set the stage for the next upcycle, according to presentation slides by Evercore ISI upstream analyst Stephen Richardson at a webinar on the forward industry outlook sponsored by his investment bank.

"The market has taken a skeptical view of oil consumption post-COVID," the slides said. "The Q3 uptick was just an industry restart, not a resumption of growth."

While conceding the "vast majority" of upstream operators are committed to largely maintenance capital and minimal output growth, a few "outliers" are not, TPH said, without naming them. Some smaller operators grow at double-digit rates, but from a low production base.

"We struggle to understand the rationale of adding even 25,000-50,000 b/d of unconventional supply to the market when the path forward on demand remains rocky" from the pandemic and some global supply issues such as Libya's current output ramp, TPH said.

And, a change in the US presidency may result in a policy change towards Iran, which has lost 1.9 million b/d of supply since 2018 from sanctions, it said.

"In our opinion, growth shouldn't even be part of the discussion until OPEC volumes normalize and there is clear line of sight towards full demand recovery," TPH added, but projected that might not occur until 2022 or later. "We continue to believe the industry needs $50-$60/b to generate a decent rate of return."