Houston — The US oil and gas rig count rose by one to 289 on the week, rig data provider Enverus said Aug. 20, while Permian Basin rigs dropped to an 11-year low in the West Texas/New Mexico play.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
The Permian, which has produced oil and gas for about a century, clocked in with 128 rigs for the week ended Aug. 19, down one. But as recently as the first week of March, 428 rigs – 300 more than currently – were working in the basin, Enverus data show.
The week's Permian rig volume is the lowest since August 2009, a time when unconventional drilling for oil was in its infancy and the industry was recovering from the Great Recession, which began in December 2007.
Although the Permian is both the largest US oil producing basin and players there call it one of the most economic, upstream operators are being prudent during the current period of low crude prices caused by the coronavirus pandemic, Matt Andre, an analyst with S&P Global Platts Analytics, said.
"We think producers are practicing capital discipline," Andre said. "Second-quarter 2020 earnings talked a lot about maintenance mode for the oil plays and although $40/b WTI may be above breakeven, it's not the profit they're looking for."
Producers 'extremely conservative' with money
"Coming out of a oil price collapse, we believe producers are being extremely conservative with their money," he added.
WTI, which had been hanging just below $50/b at the beginning of March, plummeted to the teens in April and was still in the $20s/b in early May. Prices are currently in the low $40s/b – enough for most public producers to maintain current production and meet financial goals for now.
The domestic rig count, which troughed at 279 in mid-July, has now crept slightly off the bottom but remains at historic lows. It appears to have roughly stabilized as it seeks its next range while industry pauses drilling to focus on maintaining production before launching more well completions later this year.
So far in August, the domestic rig count is flat with the 287 July average. At its lowest, it was down 67% from early March levels.
For the week ended Aug. 19, oil rigs gained one for a total of 201, while gas rigs held steady at 88.
"In our last update, we noted that private operators were helping to put a floor in on total US land horizontal activity and that trend continued again last week," investment bank Tudor Pickering Holt said in an Aug. 17 investor note.
"However, those gains were more than offset by public operators collectively continuing to curtail activity, with ExxonMobil – the largest US land horizontal rig operator – continuing to lead the charge lower."
Producers still shedding rigs in Q3
By the week ended Aug. 7, ExxonMobil had just 29 rigs running in Q3, compared with 47 rigs on average in Q2, said TPH, which uses both Enverus data and its own research in calculating rig counts. For the same two respective quarters, EOG Resources had five rigs, as opposed to 10, Diamondback Energy had 13 compared with seven, and Concho Resources had nine rigs versus 12.
Enverus data shows that for the week ended Aug. 19, most of the eight most prominent unconventional basins registered changes of just one rig up or down. The exceptions were the Haynesville Shale in East Texas/Northwest Louisiana, up two to 37, and the Marcellus Shale mostly in Pennsylvania, which at 25 rigs remained the same week on week.
The round of Q2 earnings conference calls that finished in early August brought some badly needed confidence to an industry wracked by months of uncertainty from low oil demand in the wake of the pandemic. Operators that had curtailed oil output as wells became uneconomic at prices not seen in 20 years, by early August had restored the bulk of their volumes, and began, or planned, to restart some limited drilling and well completions.
In short, some of the former clouds of invisibility on H2 2020 had begun to lift during the calls, allowing operators to look forward to what they believe will be a more solid year in 2021.
Rig providers, particularly the largest drillers, indicated that Q3 rig counts will be down sequentially. investment bank Credit Suisse said. For Q3, Patterson-UTI and Helmerich and Payne each came in at declines of around 28% quarter on quarter, and Nabors Drilling at 19% lower for the three month period, investment bank Credit Suisse said.
"These guides roughly approximate our expectation for a 25% sequential decline ... but represent significant improvements from the Q3 quarter-to-date average," the bank said in an Aug. 7 investor note.