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US oil, gas rig count falls by 12 this week to 919: Enverus/DrillingInfo

Highlights

More than 300 rigs have left US fields since November 2018

Rig count is expected to drop further, analysts say

More mergers could result from lower oil prices

Houston — The US oil and gas rig count fell by 12 rigs to 919 this week, continuing a downward trend since late 2018 as drilling activity gradually slowed in most of the domestic large unconventional basins, according to Enverus/Drilling Info data, released Thursday.

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And with the prospect of stagnant or slightly lower oil prices going forward, analysts believe the rig count could continue ticking down, analysts said, even though operators have increasingly been able to produce more oil with fewer rigs.

"Operators are finding themselves now in a similar spot to when we started the year: a weaker crude price environment coupled with the continued push to satisfy investors," through reining in capital budgets and returning more cash to shareholders, said analyst Sami Yahya of S&P Global Platts Analytics.

Since the recent US rig count peak of 1,233 last November, more than 300 oil and gas rigs, or 25%, have left domestic fields as oil prices have zig-zagged and in the last couple of months, dropped from former levels in the high $50s/b to low $60s/b.

In the last four weeks alone, industry has dropped 30 rigs.

Oil prices have dropped in October to the low $50s/b as demand remained jittery after a drone attack on Saudi oil infrastructure last month sent prices up to the high $50s/b.

This week, WTI averaged $52.65/b, down $1.89, while WTI Midland averaged $53.50/b, down $1.90, according to S&P Global Platts Analytics data. The Bakken Shale Composite price was $47.04/b on average, down $1.01.

Gas at Henry Hub in Louisiana averaged $2.25/MMBtu, down 12 cents, while at Dominion South, the price averaged just $1.10/MMBtu, down 30 cents.

On Thursday, NYMEX crude futures were trading in the high $53s/b.

E&Ps CONCERNED OVER OIL PRICES

The latest Dallas Federal Reserve Bank energy survey in late September found low crude and natural gas prices to be respondents' biggest concern, followed by limited capital and credit.

"Unless there is a material pullback, the environment is static around $55/b," one upstream respondent said. "Even if your business is rock solid at this price, the capital markets aren't functioning well, so it's hard to move off of the 'stuck' or 'static' outlook."

Another E&P respondent said "the market is heavily driven by events of the moment, which makes strategic planning more like strategic speculation. It seems that the supply side is likely to continue to outrun the demand side unless an 'event' occurs that is perceived to restrict supply."

On the other hand, industry likely needs a $10/b rise in oil prices to feel secure, said Paul Horsnell, manager of commodities research for Standard Chartered Bank.

But industry is not holding its breath that prices will rise increase anytime soon.

"It's hard to imagine that current capex can be sustained in a $50/b world, and so [we're] likely to see some guiding downwards" of 2020 capital budgets, Horsnell said. "And where capex goes, so does the rig count."

The number of active rigs may "get a little boost" at the start of next year when new budgets kick in, he said, "but the trend is still likely to be lower for a bit."

MOST US BASINS DROPPED RIGS THIS WEEK

This week, just three of the eight large named US basins saw rig gains. The gas-prone Haynesville Shale in East Texas/Northwest Louisiana picked up three rigs ro 56, while the Denver-Julesburg Basin in Colorado and Utica Shale of Ohio each gained one rig.

That raised the total in the DJ to 25 and the Utica to 16, Enverus said.

Otherwise, decreases were seen in all other basins. The largest this week was in the Permian Basin of West Texas/New Mexico, which fell by five rigs to 412.

Two other basins, the SCOOP-STACK in Oklahoma and the Williston Basin in North Dakota/Montana, each fell by three rigs. That left the Oklahoma play with 53 rigs and the Williston with 56.

The Eagle Ford Shale of South Texas declined by two rigs, leaving 70, while one rig left each of the Marcellus Dry and Marcellus Wet basins, for a total 25 in Dry and 17 in Wet.

Analysts say more upstream-company mergers may result from lower oil prices, even amid drilling and completions efficiency gains that rake more oil and gas out of each well.

So-called "Tier 2" names -- or smaller, less-efficient operators -- "need to come to grips with their situation and look to go the merger-of-equals route," Kelly said.

That appears to have already begun, with Callon Petroleum's pending acquisition of Carrizo Oil & Gas. The two are mid-cap Permian Basin operators; Carrizo also has an Eagle Ford operation.

-- Starr Spencer, starr.spencer@spglobal.com

-- Edited by Valarie Jackson, newsdesk@spglobal.com

Platts University | December 9-10, 2019 | New York

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