The US oil and gas rig count added three for a total 821 on the week, and could be just weeks away from its pre-pandemic level of 838 if the current growth rate continues, energy analytics and software company Enverus said June 2.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
Oil-directed plays lost three rigs, leaving 640, while rigs chasing natural gas added six making a total 181 for the week ended June 1.
The May rig count concluded on a high note, averaging 810 for the month – up 16 from 794 in April. The totals show that rig count additions are slowing slightly as April was up 20 rigs from 774 in March, which was up 26 from 748 in February.
No one basin showed outstanding week on week change, since each of the eight prominent domestic basins was either up or down a rig.
However, the biggest movement came in the Marcellus Shale which was down two on the week, leaving 41.
Rig totals in the Marcellus, which is essentially a dry or gas liquids-prone basin found mostly in Pennsylvania/West Virginia, have been rangebound in the low to mid-40s since January 2022. The basin's total of 41 rigs for the week ended June 1 is only up by seven from the same week a year ago.
Apart from that, four basins added one rig apiece – the Permian Basin of West Texas/New Mexico, the SCOOP-STACK play of Oklahoma, the DJ Basin largely in Colorado and the Haynesville Shale in East Texas/Northwest Louisiana.
That moved Permian rigs up to 340 – a recent high since the pandemic and the highest since early-April 2020. Pre-pandemic, the Permian was at 429 rigs the first week of March 2020. But the count had been even higher – in the mid-470s – in early 2019.
Permian rigs growing
But the Permian, which until last week had also showed a rangebound rig count since March, now appears to have broken out of the mid-320s to mid- 330s box and is growing again. Production in the giant basin has also ticking up, with oil moving from 4.9 million b/d in March to an estimated 5.4 million b/d in June, while in the same period Permian natural gas output has risen from 14.1 Bcf/d to 14.5 Bcf/d.
In addition, the Utica Shale, mostly sited in Ohio, lost a rig leaving 11. It has been in the 11 to 13 range for the past year, with a couple of weeks dipping to 10 and a couple of times rising to 14. The basin largely produces natural gas and gas liquids.
Otherwise, the Eagle Ford Shale of South Texas and the Williston Basin of North Dakota/Montana showed no change for the week ended June 1. That left those basins at 74 and 41 rigs, respectively. This is the third consecutive week of 41 rigs for the Williston, which contains the Bakken Shale.
More than two years after the onslaught of the coronavirus pandemic, at a time when daily life for consumers has more or less normalized, E&P teams are still prioritizing capital discipline in activity and output growth.
However, "upward pressure on capex budgets from inflation and service tightness is picking at scabs from prior years when E&P operators would chase higher commodity prices with growth spending," Wells Fargo analyst Nitin Kumar said in a May 31 investor note.
E&P operators in the last few years have opted to exercise capital discipline in their yearly spending plans, rather than reinvesting most of their cash back into drilling. They've said their tight rein on spending owes mainly to "a backwardated commodity curve and a constrained supply chain as headwinds to incremental investment," Kumar said.
US output growth debate
"Longer term, we think the debate around a call on US growth and the response from independent E&Ps is starting to percolate in the minds of both investors and management teams. A realization that peak oil/gas demand is not behind us is likely to drive further discussion around this topic," he said.
At the start of the US' summer driving season, with one month left in second-quarter 2022, the potential impacts of service costs on capex budgets remains "top of mind for investors," Kumar added, as it did during Q1 upstream operators' conference calls.
"Steel, diesel, and labor have been cited as the most common drivers of higher costs, and lead times for incremental equipment and activity are roughly in the 12-18 month range currently," he said.
Research firm Bernstein kicked off June 1 what will be an early-summer round of conferences by investment banks. At the Bernstein gathering in New York, some of the same comments on capital discipline came from CEOs of EOG and Chevron.
For example, EOG Resources CEO Ezra Yacob said he believes upstream producers will continue capital discipline for the foreseeable future.
"Coming [out of] the downturn, there are fewer companies than there used to be on the public side, and definitely on the private side, and it takes a certain amount of scale [and] depth of inventory so you can have repeatability and line of sight," Yacob said. "So, for the most part, I do think that the discipline is going to stick."