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US oil, gas rig count rises by three to 871, Enverus says, as most basins add rigs or stand still

Highlights

Permian adds most rigs: up 3 to 347

Even Permian growth may be slow in H2-22

  • Author
  • Starr Spencer
  • Editor
  • Jim Levesque
  • Commodity
  • Natural Gas Oil

The US oil and gas rig count rose by three to 871 on the week as most basins either added rigs or stood still, energy analytics and software company Enverus said Sept. 8, amid domestic production that ticked up past the 12 million b/d mark.

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Rigs chasing oil declined by four leaving 662, while natural gas-prone rigs gained seven for a total 209.

The giant Permian Basin, the country's largest oil reservoir that spans both West Texas and Southeast New Mexico, gained the most rigs for the week ended Sept. 7 – three, hitting a new recent high of 347.

Even so, that basin has been remarkably stable activity-wise in recent weeks, given what operators call its premier economics and opportunity set. The Permian rig count has been largely at or above 340 since mid-July, and mostly above 335 since mid-May, although it ramped quickly after starting 2022 at 299 rigs.

The last time the Permian rig count was higher than this current level was during the week ended April 1, 2020, at 374. The basin has yet to match its pre-pandemic high of 429.

Four other basins gained a rig each: the SCOOP-STACK of Oklahoma and three gas-prone basins, the Marcellus Shale of mostly Pennsylvania and West Virginia, the Haynesville Shale of East Texas and Northwest Louisiana and the Utica Shale of mostly Ohio. That pushed the Haynesville to 75 rigs, the SCOOP-STACK to 47, the Marcellus to 46 and the Utica to 11.

The Eagle Ford Shale of South Texas lost two rigs, leaving 79, and the Williston Basin of North Dakota/Montana lost one rig, leaving 43. Activity was unchanged in the DJ Basin at 22 rigs for the third week in a row.

US production grew on week

The Permian, which produces about 5.5 million b/d of oil and 15 Bcf/d of gas, contributes the bulk of oil growth to the US' current crude production of 12.1 million b/d, according to the US Energy Information Administration's most recent output report. That is up roughly 100,000 b/d from the previous week.

Even so, Scott Sheffield, founder of the biggest eastern Permian upstream E&P company, is doubtful that even the basin's current brisk activity is enough to lift total domestic oil production growth this year much past 500,000 b/d to 600,000 b/d.

Sheffield, CEO of Pioneer Natural Resources, said Sept. 8 at the Barclays Energy CEO-Power Conference in New York that there may even be a "downside" to that range in 2022, due to inflationary pressures, scarcity of top-tier rigs and supply chain pressures that is limiting fabrication and delivery of oilfield equipment and crews.

"That's going to keep people from drilling too much in the Permian," Sheffield said. "So all that's working against trying to gain too much on the oil side."

Moreover, he said "type curves" – average production profiles for wells in a given basin or region – are coming down.

Development style may affect output

"As you go into the Permian, and full stack development [producing multiple horizons at varying depths, taking into account returns, value and efficiencies while minimizing environmental footprint] you're mixing different types of profiles," Sheffield said.

"Also, many smaller companies are drilling Tier 2, Tier 3 acreage in all the basins," he said, referring to lesser-quality acreage than the Tier 1 which has largely been drilled up after a decade of intensive shale oil development.

Likewise, Ezra Yacob, CEO of EOG Resources, also noted at the Barclays conference Sept. 8 that US rig growth this year has largely come from privately held operators. Enverus data show that "privates" account for about 60% of rigs in the eight major domestic shale basins.

"Some of those private companies are small-scale, and having a problem getting some supply chain issues worked out," Yacob said. "Also, they're kinda latecomers to the [Permian], and often where they have their rigs, it's not on what we'd say is growth inventory or what we'd consider high quality acreage."

As a result, there is a "disconnect" between what was historically once a positive correlation between rig growth and oil growth, he said.

But drillers don't see any activity slowdown anytime soon. They say their own supplies of top-tier drilling rigs are about sold out, and many providers are now upgrading older rigs. That work takes about six months per unit, so upgraded rigs should start to appear in the fields later this year.

And next year, majors and large-cap E&P companies will start to add more rigs, which they have not measurably done in the last few years, Andy Hendricks, CEO of US land driller Patterson-UTI, said at Barclays Sept. 7.

"We're still seeing very strong demand" for rigs, Hendricks said. The recent volatility in oil prices which has caused WTI to drop into the low $80s/b from over $100/b in March through mid-July "has not affected our conversations at all with our customers. They're not fazed by the volatility," he said.