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Half of increase, 7 rigs, in Permian Basin

All new rigs in US fields chasing crude oil

Frac unit count 'in a powerful uptrend'

Houston — The US oil and gas rig count rose by 15 to 308 in the week ending Sept. 23, rig data provider Enverus said, marking the largest weekly gain in the more than six months since the current industry downturn began.

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The week-on-week increase brought the nationwide rig count, which had been rangebound in low 280s to the mid-290s for 14 weeks, above 300 for the first time since early June.

The Permian Basin accounted for nearly half the added rigs, or seven, for a total 135, the highest number in that West Texas/New Mexico play since late July. The Eagle Ford Shale in South Texas gained three rigs, making a total of 12, also the highest since late July.

All rigs added to the domestic fleet in the past week were oil-directed. The oil rig count rose by 17 to 217, while rigs chasing natural gas dropped by two to 91.

"The rig increase could be part of a Q4 push" as operators spend the last of their 2020 capital budgets before the holiday season from late November until the new year, S&P Global Platts Analytics analyst Matt Andre said.

"I'm also guessing operators were waiting to see what prices are going to do," Andre added. "It appears they will continue to hover around $40/b, which allows some producers to make money in the Permian, and we're seeing some rigs added to profitable areas of the basin. That should provide Permian producers an uplift in internal return rates [and] lower breakeven prices."

Platts Analytics projects WTI oil prices for next year to average $40.70/b, with Q1 averages at $37.60/b and Q4 at $44.40/b.

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Still need $50-plus/b for new drilling

Asked by the Dallas Federal Reserve Bank in its third-quarter survey released Sept. 23 what oil price would spur new drilling, 43% of its 200 executive respondents across Texas, Louisiana and southern New Mexico said WTI would need to reach $51-$55/b before the rig count started to increase substantially.

Roughly 29% said new drilling would come on at $56-$60/b WTI, while 18% thought prices would need to rise above $60/b.

Just 11% said the rig count could rise materially with prices below $50/b.

To entice a prompt and sharp increase in completions of already-drilled wells, WTI would need to rise to $46-$50/b, according to 36% of respondents, while 28% said a $51-$55/b price is needed.

In the past week, WTI averaged $40.15/b, up $2.08' WTI Midland rose to $40.29, up $2.02; and the Bakken Composite price averaged $37.38/b, up $2.36, according to Platts Analytics.

Frac counts in 'powerful uptrend'

The weekly count of hydraulic fracturing crew/equipment units bottomed in mid-May 2020 at 45 and "has been in a powerful uptrend since," Thomas Curran, an analyst at B. Riley Securities, said in a recent investor note. He noted data provider Primary Visions said the weekly frac unit count hit 85 on Sept. 11.

US land driller Patterson-UTI said in its Q2 2020 call in late July it would likely average four frac crews with a 10% increase in activity in the third quarter, but this month expanded that figure to five.

As for new drilling, Patterson-UTI and three other North American land drillers—Helmerich & Payne, Nabors Drilling and Precision Drilling, which collectively account for well more than half of current US onshore activity—see the rig count likely remaining stable until early 2021, Curran said.

That could include "a potential upside scenario in which operators' commodity price expectations lead them to hire an incremental 30-40 rigs," he said.

If the full volume of that added demand were to materialize, it would likely include some natural gas-oriented rig deployments into the Marcellus and Utica shales in Pennsylvania and Ohio, respectively, he added. But even then, total additional deployments would still only increase the rig count by 13%-17%.

Thus, as next year progresses, a rising number of operators "will have to pivot from a heavy focus on DUC [drilled but uncompleted well] execution to a greater volume of new well drilling in order to hit their production targets," Curran said.

He added both Helmerich & Payne and Nabors believe the rig count will recover into the 400s by late 2021.