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Highlights

Marcellus climbs to highest rig count since 2015

Permian sheds rigs for third straight week

Denver — It appears a dip in oil prices has affected drilling activity as the number of active rigs either declined or remained the same in all but one US onshore, oil-rich basin, while the gassier Marcellus managed to add five new rigs week on week, according to S&P Global Platts Analytics data.

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The active rig count dropped by four to 1,179 for the week that ended Wednesday, marking the second week in a row operators reduced rigs in the field, with the drops focused in oil-rich basins. Active rigs fell by 25 last week with 19 of those being oil-oriented, the largest week-on-week drop since late February, when rigs fell by 26.

Click here for full-size graphic

PERMIAN DROPS

The Permian, located in West Texas and New Mexico, accounted for the bulk of the decline in oil-directed rigs as the play fell by two to 480 after shedding 12 rigs the week prior.

The Permian is the largest producing basin in the US, with an estimated average production of 3.9 million b/d of oil and 8.1 Bcf/d of dry gas, according to Platts Analytics. But pipeline and other takeaway capacity are limited and virtually match production.

The constraints have played havoc on oil and gas prices in the region. In the last two weeks alone, Waha cash prices have swung from as high as $3.85/MMBtu to a new all-time low of 45 cents/MMBtu November 27. Waha cash had rebounded somewhat to $2.12/MMBtu Thursday, which still was a $2.50 discount to Henry Hub. An explosion on DCP Midstream's Sand Hill pipeline caused the large jump in cash about weeks ago, as dry gas production fell as much as 1.5 Bcf/d at one point, according to Platts Analytics.

Since then, output has risen to new record highs of 8.3 Bcf/d within the last week, which has aided the price dip. Recent production growth out of the Permian is likely attributed to completion of the Sunrise pipeline expansion. The project added 350,000 b/d of takeaway capacity and started commercial flows in early November.

Platts Analytics assumes gas makes up about 15% of the average barrel produced in the Permian. Based on this, each 100,000 b/d of additional oil production would generate close to 87 MMcf/d in associated gas.

The front-month NYMEX crude oil contract dropped another 2.7%, or $1.40, Thursday to settle at $51.49/b. The prompt-month settle has averaged $52.64/b so far in December after averaging about $55/b in November.

In most basins, rig counts remained fairly steady from the week prior. Rigs in the Bakken fell by one to 62 while the Denver-Julesburg remained at 32. The Haynesville lost one to 58, Eagle Ford remained at 93 and the Utica remained at 16. Oklahoma's SCOOP/STACK was the only oil-rich play to add a rig -- the count rose by one to 108.

MARCELLUS CLIMBS

Pennsylvania's Marcellus Shale rose five rigs to 58, the highest number of rigs deployed in the play since July 2015. The year-to-date average for rigs in the Marcellus is 53. Producers in the region have started growing volumes because of the recent startup of Williams' 1.7 Bcf/d Atlantic Sunrise gas pipeline.

Operators might even add more rigs to the Marcellus next year as Southwestern Energy, one of the most prolific producers in Appalachia, said it might double its deployed rigs to six in 2019 from three depending on gas and liquids prices.

"We own and operate our own rigs," CEO Bill Way said during the company's most recent earnings call "and so our ability to position our rigs, ramp down to invest within cash flow and then bring those rigs right back up and running in the first quarter and beyond is something we've been doing for some time."

-- Brandon Evans, bevans@spglobal.com

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