US oil, gas rig count falls 15 on week to level not seen since May 2017

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Houston —
The US oil and natural gas rig count fell this week to a low not seen since May 2017 as activity dropped or stalled in all the country’s major basins, information published by RigData showed Thursday.

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As of Wednesday, a total of 1,007 rigs were working in US basins, down 15 week on week. The last time the rig count was lower was in the first week of May 2017 at 995.

This week’s tumble in the rig count was almost all in the oil sector, which plummeted 16 to 796, while the natural gas rig count dropped by one to 205. A two-rig increase was seen in rigs not specified as oil or gas.

This most recent reporting period is the first time the oil rig count has been below 800 since the first week of 2018.

The Permian Basin of West Texas and eastern New Mexico posted the week’s biggest single rig loss of seven rigs, leaving 430 – all of which are oil-directed. The SCOOP-STACK play in Oklahoma shed five rigs, all chasing oil, leaving 71, while the Eagle Ford Shale jettisoned three oil rigs to leave 78 working.

Another big oil play, the Williston Basin of North Dakota and Montana, remained the same week over week with 57 rigs, while the Denver-Julesburg Basin mainly in Colorado unloaded two oil rigs to leave 28 operating.

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EVEN WITH LESS RIGS, PRODUCERS’ OIL OUTPUT RISES

The US oil story has been a marvel of efficient productivity in the last half-dozen years, with large explorers and producers able to raise their crude output by single-digit percentages year over year and smaller companies often by double-digits, often with lower spending and the same number or fewer rigs.

Oil production from unconventional plays was estimated at 8.45 million b/d in June, 8.41 million b/d in May and 8.38 million b/d in April, according to US Energy Information Administration data. In August, EIA projects output will average 8.54 million b/d.

But oil prices have been volatile recently. Still, in the week that ended Wednesday, cash WTI averaged $54.86/b, up $1.06 week on week, while cash WTI Midland averaged $55.01/b, up $1.87/b compared with the prior week, according to S&P Global Platts.

However, the sector appears dispirited over a lack of investor interest and a failure to generate sufficient shareholder earnings.

At the EnerCom Oil & Gas Conference in Denver this week, the positivity of a hyper-competent, productive sector was often overshadowed by producers’ need to heavily tout cash flows and year-on-year EBITDA generation to lure investors to the sector.

“It’s hard to blame companies for adopting this tack as they seek to increase their appeal to a broader universe of investors,” Stephen Richardson, an analyst with Evercore ISI, observed in a late Wednesday note.

“Most discussions in [EnerCom private] breakout sessions centered around the idea that if a producer could just show a competitive free cash yield, or better return on cash employed, or some other returns-focused metric, they could then convince investors of the attractiveness of their story,” Richardson said.

Oil-company executive presentations “almost universally” assumed capital budgets based on above $55/b oil and $2.50/MMBtu gas, he said.

GAS RIGS FLAT TO SLIGHTLY DOWN

On the gas side, the Haynesville Shale rig count in East Texas and northwest Louisiana also remained steady week on week at 53, as did the Dry Marcellus Shale at 28 rigs.

But the Wet Marcellus, also mostly in Pennsylvania, shed three rigs to drop to 20 while the Ohio-centric Utica Shale lost one rig to end the week at 16.

Cash gas prices ticked down a bit this week. The price at the benchmark Henry Hub point averaged $2.12/MMBtu, down 2 cents week on week, while Dominion South prices averaged $1.81/MMBtu, down 7 cents.

Even as the total US rig count sharply decreased, the number of permits applied for rose by 181 week on week to a total of 1,041. Permitting indicates an intention to drill near-term, although not all granted permits result in activity.

In addition, most of this week’s permit increase came in two plays: the Denver-Julesburg Basin, which had the biggest weekly rise of 95, for a total of 244, and the Permian Basin the number of permits rose by 53 to a total 170.

— Starr Spencer, starr.spencer@spglobal.com

— Edited by Keiron Greenhalgh, newsdesk@spglobal.com