Houston — A long-awaited trough in the US rig count appears to be settling in after the severe drop in oil prices during late 2014, although analysts widely believe some exploration-and-production companies will selectively add rigs later this year.
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But experts say the adds will likely amount to a trickle rather than a deluge, as current oil prices around $60/barrel is enough to sustain current levels, but not enough to entice a widespread activity rebound.
In fact, the Baker Hughes rig count rose Friday for the first time since early December, although the increase of two appeared to come from natural gas-prone areas outside the big shale plays, where rig counts continued to drop.
"We do expect the rig count to rise minimally through the remainder of this year [at an estimated] small 3-5% increase through year-end, so maybe 25-40 incremental rigs," Robert W. Baird analyst Daniel Katzenberg told Platts.
Baird "does not see much upside from that level in 2016, but obviously commodity prices will dictate the direction next year," Katzenberg said.
Several companies have already outlined plans to add rigs, including:
--Pioneer Natural Resources said, starting in July, it will put two rigs/month to work until December. In Q1 2016 it expects to add eight more rigs, including six in the eastern Permian and two in the Eagle Ford Shale. --Independent Matador Petroleum could add a third rig in the Permian in the third quarter.
--Another small independent, Parsley Energy, said it would accelerate one month, to June, its addition of a fourth rig in the Permian Basin, on top of two others added recently.
--WPX Energy said Thursday it will add two more rigs in the Permian Basin starting in August.
--Apache reportedly has indicated it may add five rigs, probably in the Permian, in second-half 2015 based on an oil price of $60-$65/b.
"While the incremental [increases] may be scaring off some investors, the total amount of additional committed rigs is roughly 40, which ... is not the game-changer that should result in big changes in oil production trends," RBC Capital Markets analyst Leo Mariani said in a Thursday investor note.
One reason oil companies may be slower to add rigs than they have been in the past is that they have wrung astonishing efficiencies from their operations in a very short period of time, as the number of days to drill a well keeps contracting while initial well production rates and estimated hydrocarbon recoveries expand.
Also, corporate efficiencies, coupled with cost concessions of around 15%-25% granted by oil services and equipment providers this year, have also lowered well costs and driven up internal return rates in the best plays to the point that operators appear comfortable with the current price environment, even if they privately hope for an eventual return to $80/b oil.
As long as operators continue to pursue efficiencies, drive down costs and wrest larger volumes of oil and gas from the ground to meet production goals, more rigs may not be needed for awhile, said Carl Larry, a Frost & Sullivan oil and gas consultant.
"There's really no need to increase the rig count as long as we're being as efficient as we are," Larry said. He added if oil should hit $70/b it might be a catalyst to bring more rigs into the market.
Experts say the Permian Basin of West Texas and New Mexico appears the most likely draw for incremental rigs, followed by assorted resource plays in Oklahoma and in some cases, the Bakken Shale in North Dakota and Montana.
"The economics [of those plays] at current levels are strong enough to support more activity" in those areas, said Morningstar analyst David Meats.
Andy Hendricks, the CEO of North America's second-biggest land driller, Patterson-UTI, said Permian operators comprise many small private companies that historically "lead the way" in rig additions coming out of industry downturns.
"You have a higher concentration of those operators in West Texas and the Midcontinent [stepping up activity] before some larger companies start to put rigs back," Hendricks told Platts. On the other hand, the Eagle Ford Shale, in south Texas, tends to be the province of larger E&Ps that add rigs later on.
Meanwhile, the overall Baker Hughes rig count rose by two rigs to 859 for the week ended June 25, down 56% from a peak of 1,931 in late September. In addition, the oil rig count fell by three to 628, down 61% from its 1,609 peak in October 2014.
The rig count increase this week came from the gas side, where rigs were up by five to 228, but down 35% from a recent peak of 356 in November.