Houston — After consecutive weeks of single-digit declines, the US oil and gas rig count may have essentially reached its long-awaited bottom.
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The US oil and gas rig count fell by six to 285 for the week ending July 1, Enverus data shows, following a one-rig decline the week prior. Upstream operators shed four oil rigs week on week, leaving 191, and lost two gas rigs, leaving 94.
From here on, some "minor" fluctuations in rig counts may occur, what analysts call "noise," but large weekly changes are not expected, said analyst Matt Andre of S&P Global Platts Analytics.
"We're going to see some slight up-and-down movements, but we're really close to a bottom," Andre said. "Oil is $40/b, and ConocoPhillips is talking about increasing oil production."
Based on its economic criteria, ConocoPhillips said June 30 it expects in July to begin restoring some of the 225,000 boe/d of production it curtailed during the second quarter. Restored volumes will be both in the Lower 48 and Alaska.
Rig counts unchanged in five basins
Five of the eight largest US basins showed no weekly change in rig counts, and four of those basins—the Bakken Shale in North Dakota/Montana, the SCOOP/STACK in Oklahoma, the Utica Shale mostly in Ohio and the DJ Basin in Colorado—now have 10 active rigs or less.
Years ago, the Bakken and the Eagle Ford in South Texas each had over 200 rigs running. On July 1, the Bakken had 10 rigs, unchanged on the week, while the Eagle Ford had nine rigs after losing two rigs from the previous week.
The Permian Basin of West Texas/New Mexico, which boasted a rig count over 400 in January, is down to 140, with one rig shed from the previous week.
"The horrendous second-quarter 2020 is finally behind us, with total drilling activity finishing [at] record-low levels," investment bank Tudor Pickering Holt said in a June 29 investor note.
The rig count averaged 411 in the second quarter, down 50% from 828 during Q1, according to Enverus data.
"For reference, the worst quarterly decline during the 2015-16 downturn was around 35%," Tudor Pickering Holt said. By comparison, Q2 2020's sequential decline of 50% highlights "the sheer speed of the recent rig count fall-off."
Investment bank B. Riley FBR estimated the number of well completions decreased 36% in May over the prior month to 441. The recent peak was 781 in November 2016, it said.
'Slight' recovery may be seen in H2 2020
In the second half of 2020, some "slight" rig recovery may be seen, although this will be "very minor," Platts Analytics' Andre said.
Upstream operators will likely rely on their drilled but uncompleted wells, or DUCs, to keep production from falling, he added.
DUCs are wells that have not yet been hydraulically fractured, the last step before putting them on production. Delayed well completions are typically due either to normal lag timing, since oil companies tend to drill wells in batches and then return to complete them in batches, or the wells' completions were deliberately deferred for economic or operational reasons.
"As the sector digs out of the spring shutdown, activity, primarily completions, will inflect higher (modestly) in the second half," Stephen Richardson, an analyst for investment bank Evercore ISI, said in a June 29 investor note.
Richardson, Andre and other analysts say many of the well completions will be DUCs, and this will temporarily delay the need for more drilling rigs while allowing companies to hold production steady or increase it.