Houston — The US oil rig count continued to creep northward last week, gaining three rigs to land at 428 on Friday, according to Baker Hughes, while WTI crude hit a landmark $50/b during the week amid encouraging signs that a slumbering industry has begun to awaken.
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And even though the Permian Basin in West Texas and New Mexico lost an oil rig in the week ended September 30, which set the count back to 203, the US' most active basin is still poised to hit a home run longer term, according to one investment bank.
On Thursday, Evercore ISI offered up its view of the Permian over the next several years, one that implies as much as 1.7 million b/d of basin oil growth between now and 2020 and also 3.9 Bcf/d of incremental associated gas.
The incremental production would be fed by an increase of 100 rigs, 50 added in each of 2017 and 2018, Evercore E&P analyst Stephen Richardson said during a Thursday webinar on the Permian.
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Spurring the growth will be what Richardson called a "change in competitive dynamics" in the basin -- namely, recent increased acquisition activity with at least a dozen transactions announced or closed since June.
"Deal flow has been a really significant driver," said Richardson, whose team reviewed plans by 33 Permian producers to arrive at his model and include most of the largest players. "Development activity really increases in 2017 ... because for those who buy acreage, [turning it] into cash flow is one of the most important dynamics for many companies."
Richardson said oil prices signal a green light for development in 2017 even at a $52/b WTI average for the year, although a number of Permian-focused producers see $45/b as their pivot price for growth. His review of operator plans for next year also implies a 34% increase in capital spending, Richardson said.
The Permian currently produces an estimated 1.986 million b/d of crude oil, according to Platts Analytics' Bentek Energy, which also projects the basin's 2021 oil output at 2.184 million b/d. However, Bentek analysts say that estimate could rise as activity increases.
ACTIVITY SHOULD 'SURPASS EXPECTATIONS'
Permian activity should "significantly surpass current market expectations" in the next six to 12 months, Richardson's presentation said.
Friday's oil rig count momentum slowed from seven rigs added in the week ended September 30.
Meanwhile, a five-rig increase in the rig count of the "other"
category -- which includes smaller or conventional plays -- also showed up in the Friday numbers. At the same time, the Williston Basin held steady at 30 rigs, while the Eagle Ford Shale and the DJ Niobrara Shale lost one rig each, leaving 32 and 16 rigs working in those respective basins.
Credit Suisse analyst Jim Wicklund is also seeing green shoots emerge in diverse corners of the industry. Wicklund noted the impressive number of rigs added to the US fleet since the late-May trough -- which on Friday numbered an incremental 120, of which 112 were oil-directed, according to Baker Hughes.
"You have to admit [the upstream landscape] is getting better," Wicklund said in a Thursday investor note.
The total US rig count -- which last week was 524, up by two according to Baker Hughes -- hit a high of 1,931 in late 2014, as oil prices were over $100/b at mid-year. US oil rigs around the same totaled 1,609.
Wicklund conceded that cash flow, bank lending, equity and debt availability, and overall liquidity were still "critical issues" for producers. But he said they are easing as oil prices have climbed following OPEC's September 28 meeting in Algiers that indicated the cartel would cut production by as much as 700,000 b/d.
In addition, hedging WTI at $50/b appears to have begun, according to information and reports that have surfaced in recent days, Wicklund said.
"That alone could provide some increase in activity through 2017," he added.
On Friday, NYMEX crude futures settled down 63 cents to $49.81/b. The same day, the 12-month NYMEX crude strip price was down 40 cents to $53.67/b.
A day earlier, crude hit $50/b for the first time since June 23.
--Starr Spencer, email@example.com
--Edited by Lisa Miller, firstname.lastname@example.org