Houston — The US oil and natural gas rig count continues to decline in major basins, falling by two week over week to 740, as of October 2, according to data released Thursday by Enverus/DrillingInfo.
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It is the lowest number of active rigs deployed since April 2017. At that time, spot price at the crude oil benchmark WTI averaged $51.06/b. It is currently at $52.17/b. The Henry Hub natural gas benchmark spot price averaged $3.10/MMBtu during April 2017. It is currently down to $2.30/MMBtu.
Much of the rig drops occurred in gas-rich fields, such as the Haynesville and Marcellus shales, which lost two rigs each, down to 53 and 44, respectively.
It's the lowest rig count for the Marcellus since March 2017.
Marcellus producers have pulled back drilling significantly over the course of 2019. In January, as many as 68 rigs were active in the Northeast play.
In September, half-cycle internal rates of return in the Marcellus Dry were down to 14.7%, according to S&P Global Platts Analytics. Producers are typically incentivized to increase drilling when IRRs reach 20% or more. The Haynesville is down to 6.5%.
Despite the plummeting rig count this year in the Marcellus, natural gas production in the Northeast remains resilient.
As drilling falls and producers shift away from the growth-at-all-costs mindset to one centered on capital discipline and free cash flow generation, production still rises. Strong completions and improved initial production rates appear to be driving the production gains, according to Platts Analytics.
Starting in May, Northeast production managed to grow 1.6 Bcf/d, split evenly between the Marcellus and Utica, to an average of 32.6 Bcf/d in September.
Cycle times have come down substantially in the last few years, allowing producers to bring production to sale in a timelier manner. Additionally, operators have managed to improve upon efficiencies and generate more output per well with the same amount of rigs.
Last year, gas IP rates improved by 20% year over year, increasing by roughly 1.7 MMcf/d to 10.8 MMcf/d on average. In 2019, gas IP rates have improved by 8% YTD to 12 MMcf/d compared the 2018 average.
Data shows a less-promising high-production future for the Haynesville, though, amid the drilling downturn. The Haynesville has taken a back seat to Appalachia and Texas as production in the Marcellus and Utica continues to rise and major Permian pipeline projects like Gulf Coast Express and Cactus II enter service.
Haynesville production has undergone considerable growth throughout most of the year, from 10.5 Bcf/d in late January to 12.1 Bcf/d in early August. However, production has taken a sudden downturn in recent weeks, averaging 11.6 Bcf/d over the past seven days. Drilling fundamentals driving production indicate this could be the beginning of a slowdown in the Haynesville given the current price environment.
Despite the net rig count loss of two rigs, activity picked up slightly across the most profitable oil-rich basins in the US.
The Bakken Shale added three rigs to 59 for the week ended October 2, while Colorado's Denver-Julesburg Basin tacked on two to 24. The Permian also added one to 417.
The Permian and Bakken currently have the highest IRRs among all US basin at 30% and 19.6%, respectively.
The SCOOP/STACK in Oklahoma--where wells contain some of the most-diverse production mixes, with minerals divided almost evenly between oil, natural gas and natural gas liquids--continues to decline in activity. It lost one rig week over week to 56. The SCOOP/STACK started the year with more than 100 rigs deployed.
-- Brandon Evans, firstname.lastname@example.org
-- Edited by Jim Levesque, email@example.com