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US oil, gas rig count up 1 ahead of holiday season start

Highlights

Industry has released 365+ rigs in the past year

126 were let go in Q3, 61 so far in Q4

H&P survey suggests smaller E&P capexes next year

Houston — The US oil and gas rig count grew by one this week to 870, marking the first week-on-week gain in a month, according to consultants Enverus, as upstream activity cranked into a final wave ahead of the month-long holiday season.

Oil-directed rigs moved up two to 703, while natural gas-oriented rigs stayed level week on week at 165. The number of rigs classified as neither oil nor gas dropped by one.

Industry has laid down more than 365 rigs during the past 53 weeks since the recent peak of 1,237 in mid-November 2018, as WTI crude oil prices retreated from the mid-$70s/b in early Q3 2018. This month, WTI has mostly stayed in the $56/b to $57/b range.

Of those rig losses, 126 were released in Q3 and 61 rigs have left the field so far in Q4, compared to just 41 in Q2 and 47 in Q1.

"Our public customers spent about 54% of their budgets during the first half of the calendar year and released rigs on a net basis in calendar Q3," said Mark Smith, chief financial officer for driller Helmerich & Payne, on the company's Q3 call last Friday.

Click here for full-size image

Oil prices have fallen this week, according to S&P Global Platts Analytics: WTI averaged $56.77/b, down 26 cents; WTI Midland averaged $57.84/b, down 35 cents; and the Bakken Composite price averaged $52.04/b, down 68 cents.

Gas price movements were mixed, as Henry Hub gas price averaged $2.57/MMBtu, down 17 cents, and Dominion South averaged $2.23/MMBtu, up 2 cents.

H&P's Smith said a recent sampling of his company's customers suggests their capital budgets will decrease next year from 2019 levels. Also, the driller's own budgeting assumes calendar year 2020 activity levels that are "relatively flat" with second-half 2019, Smith added.

RIGS UP IN EAGLE FORD

Among the US' eight-most prominent basins this week, the biggest rig count change came from the Eagle Ford Shale in South Texas, which was up by six rigs to 74. The other seven basins either showed no change or were up by one.

Two plays, the giant Permian Basin of West Texas/New Mexico and the SCCOP-STACK of Oklahoma, gained one rig each this past week. That pushed the Permian to 408 rigs and SCOOP-STACK to 42 rigs.

Five other basins showed no change week to week. That left the Williston Basin of North Dakota/Montana with 54 rigs; the Haynesville Shale located in East Texas/Northwest Louisiana at 53 rigs; the Marcellus Shale mostly sited in Pennsylvania with 36 rigs (Dry 20, Wet 16); the Denver-Julesburg Basin mostly in Colorado with 24 rigs, and the Utica Shale mostly found in Ohio with 13 rigs.

In addition, the "Other Basins" category, that contains rigs not grouped in the eight others basins, fell by seven to 166 rigs this week.

Permit approvals registered a modest 205 in gains this week, for a total of 813, with the largest positive in the DJ Basin, up 33 for a total 100; the Wet Marcellus, up 25 to a total 25; and in the Haynesville, up 20 for a total 27.

In the Permian Basin, permit approvals were down 19 to 177. "Other Basins" had the bulk of permit gains, up 155 for a total 379.

'MODERATION OF ACTIVITY LEVELS'

With the third-quarter earnings season now concluded, the messages to industry on how 2020 might shape up has become more clearer.

"Most [E&P companies] understandably shied away from giving explicit 2020 guidance, and much of the commentary suggested some moderation of activity levels," Evercore ISI analyst Stephen Richardson said in a recent investor note.

In the Permian, activity is slowing among the larger players, and consolidation has led to some activity rationalization, Richardson said.

Overall, moderating growth and balancing value versus volume growth has proven "challenging" for the higher-decline shale operations, he added.

"There isn't much of a silver lining here, other than to note we are closer to the end than the beginning of this transition for the industry," Richardson said.

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

-- Edited by Jim Levesque, newsdesk@spglobal.com