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ANALYSIS: US oil, gas rig count climbs seven to 545 as Permian activity rises: Enverus

Highlights

Oil rigs up 10; gas drop 3

Permian rigs back at one-year high

Operators maintain capital discipline despite rising cash flows

The US oil and gas rig count climbed seven to 545 in the week ended May 5, rig data provider Enverus said, as the number of oil rigs tested one-year highs.

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The number of oil-focused rigs climbed 10 to 417, leaving them just two rigs shy of 12-month highs seen in early April.

The number of active rigs chasing mainly gas, which had been at a 13-month high the week prior, fell back three to 128.

Among the major named basins, the Permian saw the biggest uptick, with the addition of three rigs for a total 236. This put Permian drilling activity back at the one-year high seen in early April.

The Eagle Ford rig count climbed one for a total 39, and in the Denver-Julesburg, operators added two rigs leaving a total 13.

Rig counts were steady in the Bakken at 16, and the SCOOP-STACK basin shed a single rig for a total 18.

Despite the overall pullback in gas rigs, counts were steady across the major gas-focused basins. Haynesville rigs were unchanged at 53, the Marcellus at 36, and Utica at 13.

Notably, the seven additional rigs were all vertically oriented, pushing that total to 66 and the highest since January 2020. The number of horizontal drilling rigs was steady at 426.

"While we still see horizontal activity trending higher in the coming months, we've been expecting the recent rapid pace of growth to temper considerably, which is what seems to be playing out now as horizontal activity per both Baker Hughes and Enverus has now finished essentially unchanged over the past three weeks," investment bank Tudor Pickering Holt said in a May 3 investor note.

The number of active horizontal rigs has climbed 91 year-to-date, while drillers have added 34 vertical rigs over the same period.

This view was generally shared by the four biggest US land drillers--Nabors Industries, Patterson-UTI, Helmerich & Payne and Precision Drilling--on earnings calls in recent weeks, TPH said. Each company "pointed to continued activity momentum in the coming months, but at a much more measured rate of growth," the bank said.

OPERATORS MAINTAIN CAPITAL DISCIPLINE

While stronger crude prices have improved cash flows and bottom lines, upstream players appear to be maintaining capital discipline, analysts said.

"Cash flows seemed more than ample as budgets were written on $45/b assumptions," Evercore ISI James West said in an April 30 investor note. "The sector is coming off a bruising bottom, so even though activity has not snapped back to pre-COVID levels, the industry feels a lot more healthy."

"Capital restraint is all the rage right now in the upstream. but we did hear about ExxonMobil planning to increase Permian production, while Continental [Resources, a premiere operator in the Bakken Shale of North Dakota/Montana] is adding rigs back" in that play, West said.

Continental said in its quarterly call April 29 that it may add "a few rigs" at the end of 2021.

But that doesn't mean companies plan to outspend as they did in 2010-2014, when shale oil production surged from 5.5 million b/d to 8.8 million b/d, even though there is "much cash to go around," he said.

Overall, $60/b crude "feels like a sweet spot, if we think about profit-sharing among the energy value chain and how it can spawn the type of long-term strategic planning likely to yield favorable corporate outcomes for all," West added.

Front-month NYMEX WTI has averaged around $62/b to-date during the second quarter.

Patterson-UTI sees 2021 "as a year of steadily increasing activity, driven initially by private and agile public operators and then by major operators," CEO Andy Hendricks said during the company's Q1 earnings call April 29

Patterson-UTI expects its rig count will reach roughly 80 rigs over the next three months, Hendricks said, with most of the growth coming in late June and early July.

Nabors CEO Anthony Petrello, in his company's Q1 results call April 29, said interest from smaller and medium-sized operators is likely to see the company's rig count increase each quarter through the balance of 2021.