Houston — The US oil and gas rig count dropped by eight on the week ending Wednesday to 1,090, resuming a five-month general downward creep even as oil prices remain in the low $60s/b, according to S&P Global Platts Analytics.
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Oil rigs dropped by 10 to 867, while gas-directed rigs were up by one to 220. Rigs not classified as either oil or gas declined by one.
Since mid-November, the US rig count has gradually declined, losing 143 rigs from its recent peak of 1,233 as capital budgets inched down in the wake of oil price uncertainty and promises by oil companies to return more cash to shareholders.
WTI NYMEX oil prices reached around $75/b briefly in early October 2018 before they, too, began sifting down. By year-end they briefly reached around $45/b before rising.
This week, five of the named eight US unconventional basins lost at least one rig. The SCOOP-STACK basin in Oklahoma lost three rigs to a total 84, and the largely natural gas-prone Utica Shale, mostly in Ohio, dropped two rigs to 13.
The Eagle Ford Shale in South Texas, the Bakken Shale in North Dakota and Montana and the Denver-Julesburg Basin in Colorado each lost one rig. This left the Eagle Ford with 89 rigs, the Bakken with 60 rigs and the DJ Basin with 31 rigs.
The Permian Basin in West Texas and New Mexico picked up a rig, for a total 470, as did the gas-prone Haynesville for a total 64. The big Marcellus Shale, also largely gas-oriented, was unchanged week on week at 65 rigs.
The Permian is the largest-producing basin in the US, with total oil production nearing 4.2 million b/d and gas output of about 14 Bcf/d.
On Wednesday, Scott Sheffield, CEO of Pioneer Natural Resources, one of the earliest upstream operators to drill horizontal wells in the basin, said at the annual Columbia Global Energy Summit in New York he believes Permian oil production will ultimately reach 8 million b/d.
"Last year about 65% of the US' [total oil growth of around 1.8 million b/d] came from the Permian," Sheffield said. "That will move to 75%-80% of total growth in the future."
Oil prices normally are a spur to a higher rig count, but E&P operators appear to be sticking to their pledges of disciplined spending despite crude that has risen recently. And since operators have made continual efficiency improvements in recent years to their well drilling and completions, logistics and administrative systems, they have been able to achieve more on fewer dollars and less time.
They have brought breakeven prices for most plays down from the $60s/b to under $40/b, and in some cases to $30/b or even lower.
But despite their efficiencies and savings, it isn't yet clear whether a sustained higher price in the mid- to high-$60s/b could motivate further drilling activity.
Oil is currently around $63/b, up about $10 in the last four months as OPEC production cuts have worked through the market. That's a magnitude of price increase that in the past would have caused Pioneer Natural Resources to "probably add five rigs from that," Sheffield said.
"But we're adding zero rigs today," he said. "We're generating several hundred millions of free cash flow [from independent oil producers] today."
US permitting has also dropped, in lockstep with the gradual waning of rig counts although not in all basins.
This week, 1,009 domestic drilling permits were issued, down 180 from 1,189 last week. The biggest decrease came from the Denver-Julesburg, down 49 to 107, and the "other basins" category, down 190 to 596.
But the Eagle Ford gained 30 more permits, totaling 55, and the Permian gained 31, for a total 159. The Marcellus gained 21, for a total 37.
-- Starr Spencer, firstname.lastname@example.org
-- Edited by Jim Levesque, email@example.com