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US oil, gas rig count jumps 18 to 326 for second week of double-digit gains: Enverus

Highlights

US oil rig count gains 17 to 234

No large basin lost rigs last week

May add 50 horizontal rigs in next 6 months

Houston — The US oil and gas rig count jumped 18 to 326 in the week ended Sept. 30, rig data provider Enverus said, marking a second consecutive week of double-digit gains and a sign of a bold reversal for a fleet that has wobbled for months within a narrow range amid low oil prices and sluggish activity.

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Oil-weighted rig totals were up 17 to 234, while rigs chasing gas gained one for a total of 92, Enverus said. The nationwide increased followed a 15-unit gain the previous week.

Upstream operators' eagerness to spend the last dollars of 2020 capital budgets before the new year, which eventually is expected to bring higher oil prices than the roughly $40/b that oil has lingered at since late June, was the likely reason behind the startling leap forward in drilling activity, analysts said.

Most of the eight largest domestic basins gained rigs in the week; none lost any. Rigs in the Eagle Ford Shale of South Texas rose by five to 17, while in the Permian Basin of West Texas/New Mexico rigs were up four to 139.

"I think every basin is up because operators were bottomed out," S&P Global Platts Analytics analyst Matt Andre said.

Three large basins rose by one rig each: the SCOOP/STACK of Oklahoma went to a total of 12; and two gas-prone plays, the Haynesville Shale in East Texas/Northwest Louisiana and the Marcellus Shale mostly in Pennsylvania, increased to 36 and 27, respectively.

The Williston Basin in North Dakota/Montana, the DJ Basin in Colorado and the Utica Shale mostly in Ohio were unchanged on the week at 11, five and seven rigs, respectively.

'Overshot to the downside'

"All these North American and US E&P operators are getting ready for 2021," Tudor Pickering Holt oilfield service analyst Taylor Zurcher said. "They're setting their budgets next year at maintenance level, meaning they'll try to hold their 2020 exit production levels flat over the course of 2021. So, it's a matter of what rig count these guys need to keep their year-end 2020 production flat next year."

Zurcher figures a count of 360 to 460 US land rigs are needed to keep domestic production flat.

"The reality is there are a lot of DUCs [drilled but uncompleted wells], and some of these guys will blow those down to get production" from them first, Zurcher said.

"These operators were so focused in 2020 on cutting costs and maximizing cash flow, so in many ways operators overshot to the downside," he said. "So, to get to where their budgets will be set next year, the rig count will need to increase," he said.

When US WTI oil prices plunged from about $46-$47/b in early March to half that level later in the month, then dipped into the teens and briefly even lower in April, operators slashed 2020 capital budgets—some of them making two adjustments—and quickly reduced rigs drilling.

The domestic rig count plunged more than 65% from 838 the first week of March to its early July trough of 279. Since then, the rig count has gained about 17% as of this week, according to Enverus data.

Platts Analytics had expected rigs to partially pick back up in second-half 2020, Andre said.

"I agree that [US upstream operators] are looking to spend the rest of their 2020 budget," he said. "If they didn't, volumes would drop off quite a bit."

The most recent US production figures show July oil output at 10.98 million b/d in July, up 5% from June.

DUC drawdowns have been ongoing recently, as operators continue to bring down their inventory of the already-drilled wells that have a lower cost to bring on than new wells. As a result, the frac spread count, the number of hydraulic fracturing crews/equipment units, is now up to 101 this week, from about 90 the week before, according to data provider Primary Vision.

Zurcher expects the rig count to add about 50 horizontal rigs in Q4 2020 to Q1 2021, relative to the last few weeks. Enverus shows the horizontal rig count at 256 for the week ended Sept. 30.

"We saw a little bit of it last week from mostly the private [operators]," he said, "but you'll see the publics [adding rigs] going forward."

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