Houston — The US oil and natural gas rig count fell by 12 week on week to 1,049, S&P Global Platts Analytics said Thursday, amid continued slippage in crude prices into the low $50s/b and worries over global demand.
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The decrease leaves the domestic rig count at its lowest level since the week ended January 3, 2018, when totals were at 1,023.
Rigs chasing oil fell by eight to 841 for the week that ended Wednesday, while gas-directed rigs fell by five to 205. Totals for rigs not specified for oil or gas rose by one.
The continued weekly drop in rig counts, amid oil prices that have hit the low $50s/b, a level not seen since the early days of 2019, "just reinforces the trend already underway," said Bob Williams, manager of content for Platts Analytics.
The US oil and gas rig count hit a recent peak of 1,233 in mid-November 2018, when oil prices were on their way down after an early October peak over $76/b. Prices later dropped into the $40s/b in December and hit a recent low of $42.53/b on December 24 before drifting up.
PERMIAN STILL HAS LOWEST BREAKEVENS
Upstream operators in shale plays continue to improve well yields and lower costs, even though oil breakevens are somewhat stagnant.
For example, the lowest average oil price where E&P operators make at least a 10% profit is the Permian Basin of West Texas and New Mexico. Its oil breakeven remains in the low $30s/b; $31.74/b in the eastern Permian (known as the Midland Basin) and $32.36/b in the western Permian (Delaware Basin), according to Platts Analytics' Well Economics Analyzer.
Producers generally are still able to cover their capital budgets and pay shareholder dividends at current oil prices, and many operators pledged to keep to their earlier-stated 2019 capex even if oil prices rise.
But industry generally remains wary of volatility, and it remains to be seen what producers will do if oil prices remain near $50/b. The average NYMEX oil price for the first five months this year was $57.71/b.
"A price of $50/b isn't a deal breaker in itself, judging from breakevens in the Permian, which has remained pretty resilient" despite the price drop since late 2018, Williams said.
"I suspect the rig count will drift lower in the summer, maybe to 850, when midyear adjustments will be made," he said. "Whether or not we will be in trade war or in a long-overdue recession will determine rig count growth before infrastructure problems are resolved."
Infrastructure challenges in the Permian, coupled with capital discipline, has prompted a shift in capex to drilling wells left uncompleted, Williams added, popularly called DUCs (drilled but uncompleted wells).
Lack of completions can represent simply a timing issue, since wells are typically drilled in batches and then completed in batches. Or it could mean operators are waiting for changes--in commodity prices, for example, or more skilled workers to perform the completions.
The latest US DUC count at end-April 2019 was 5,448, compared to 5,419 in January, according to Platts Analytics. In the Permian, the DUC tally is 2,113, versus 2,019 in January.
PERMIAN SHOWS LARGEST WEEKLY DECLINE
This week, most of the largest named US unconventional basins saw small rig count declines. The Permian Basin showed the largest weekly slide of seven, leaving 440 rigs.
Next-highest weekly decline was in the Denver-Julesburg Basin, mostly in Colorado, which fell by four to 28.
Appalachia--including the Marcellus Shale, largely sited in Pennsylvania, and the Utica Shale, mostly in Ohio--saw a three-rig reduction this week to 74. A closer look shows the Marcellus Dry fell three rigs to 31 and the Utica down one to 18, but the Marcellus Wet was up one rig to total 25.
Both the Anadarko Basin's SCOOP-STACK play in Oklahoma and the Haynesville Shale in northwestern Louisiana and East Texas inched down one rig. This left the SCOOP-STACK at 83 rigs and the Haynesville at 56.
The Williston Basin of North Dakota and Montana and the Eagle Ford Shale of South Texas rose by several rigs apiece. The Eagle Ford rose four rigs this week to 86, while the Williston rose three to 62.
Commodity prices tumbled this week on the oil side and were also down for gas.
The Bakken Composite price, for the Williston Basin play, averaged $51.13/b for the week, down $5.09/b for the previous week. WTI averaged $53.70/b during the same period, down $4.84 on week. Prices fell even further in the Permian, where WTI Midland averaged $52.92/b, down $4.99.
For gas, Henry Hub averaged $2.44/MMBtu, down 15 cents from the previous week, while Dominion South was at $2.09/MMBtu, down 7 cents.
The number of permits rose by 609 this week to 1,370. The largest rise in permits issued for named plays came in the DJ Basin, up 127 to 184. The Permian rose by 87 to 223, and the Eagle Ford rose 59 to 82.
-- Starr Spencer, firstname.lastname@example.org
-- Edited by Jim Levesque, email@example.com