Houston — The US oil and gas rig count inched up by two to 902 this week, rig data provider Enverus said Thursday, amid what is shaping up as a dispirited earnings season characterized by uncertainty on several fronts.
Oil-directed rigs rose by four to 728, while gas-chasing rigs were down two to 169.
The rig count is currently at 2017 levels, although at the time it was rising. It reached 1,233 in mid-November 2018 before heading back down.
The most notable change for the week came from the Eagle Ford Shale in South Texas, which rose five rigs to total 75.
The Eagle Ford basin has enjoyed renewed activity in the past year or so, although the gorilla among US plays is the nearby Permian Basin of West Texas/New Mexico where the rig count this week dropped by two to 407.
Also rising this week was the gas-prone Haynesville Shale in Northwest Louisiana/East Texas, which was up two to 57.
Otherwise, both the Williston Basin of North Dakota/Montana and the Denver-Julesburg Basin, mostly in Colorado, held steady this week at 55 and 24 rigs, respectively.
But the SCOOP-STACK play in Oklahoma fell by four rigs, leaving 46. The Dry and Wet Marcellus shales, both mostly in Pennsylvania, each lost rigs. "Dry" fell by three to total 20, while "Wet" fell by one, leaving 16.
The Utica Shale, mostly in Ohio, also declined by two rigs, to 15.
Tamped-down North American activity characterized initial third-quarter earnings of large oil service giants Schlumberger and Halliburton to kick off the earnings reporting season this past week, setting a glum mood as larger oil-focused exploration-and-production companies prepare to report in the next few weeks.
RIGS, STAGE COUNTS DECLINE IN Q3
Jeff Miller, CEO of oil service giant Halliburton, said earlier this week in his company's Q3 call that the US land rig count declined 11% from Q2 to Q3 for the first time in a decade. And Q3, historically the busiest quarter of the year for US hydraulic fracturing, saw stage counts -- that is, fractured intervals -- decline every month in Q3.
Drilling and completions are not only softening, but "the cadence of activity will likely remain the same over the near term," Miller said.
Analysts say operators are widely basing their budgets on $50/b oil or lower, based on recent oil price volatility and macro uncertainty. Meanwhile, the buzz words of the big E&Ps during upcoming calls will be capital discipline, liquidity, and free cash flow.
"We see a number of E&Ps walking down 2020 expectations this earnings season," Credit Suisse analyst Bill Featherston said in an investor note this week, adding he expects several large producers will guide 2020 capital spending and output volumes below current base case to preserve free cash flow.
For now, Featherston is forecasting capex next year for his E&P coverage universe down about 5% over 2019, but sees downside risk if WTI prices remain in the low $50s/b.
Evercore ISI Group analyst Stephen Richardson compared the current earnings season to an Alamo-like "last stand" in 2019 by worried investors in a sector where oil prices continue to test a lower range amid dim forward visibility.
Oil prices dropped to the low $50s/b this month, but have since risen to the mid-$50s/b.
Consequently, Q3 is always "fraught with anxiety, as there's no place for companies to hide in terms of capex and production results," Richardson said in a Monday investor note. "Producers are forced to show their hand on whether full-year expectations are reality or fantasy."
MANY PRODUCERS STILL OUTSPEND CASH FLOW
Even as producers have repeatedly chanted the capital discipline mantra, many producers are still outspending cash flow, Richardson said. At $50/b, only 11 names in his coverage universe are cash-positive, compared with 17 at $55/b, he said.
Furthermore, he projects 500,000 b/d of US supply growth next year at $50/b and a further rig count decrease of 65-plus, both of which he said are positive for rebalancing global supply growth in late 2020.
Richardson also noted the "sizable" group of producers that will not be able to maintain current activity levels at oil prices below $55/b and thus be forced into further cost cutting.
As industry wraps up its fifth year of coping with oil prices sizably below the generous $90-$100/b range, a new round of E&P bankruptcies has occurred this year, including public Permian producers Halcon Resources and EP Energy, and also Eagle Ford player Sanchez Energy.
The increasingly lean-meat fundamentals currently driving industry will likely cause more industry consolidation among small to mid-cap producers similar to last week's announcement of Parsley Energy which is buying Jagged Peak Energy and also Callon Petroleum's July's announcement that it would acquire Carrizo Oil & Gas, analysts say. Both transactions are pending.
(Clarifies historic comparison in third paragraph.)
-- Starr Spencer, firstname.lastname@example.org
-- Edited by Valarie Jackson, email@example.com