Like a crippled ship of the line, more and more of the industry is drifting into the inky black.
A spike in oil prices in early March has done nothing to patch them up. Oil companies have guided production lower; drillers are running bare bones operations; and horizontal rigs are simply not in demand.
The U.S. land rig count fell by 13 to 450, a decline of 58% compared with last year and 73% since the peak in November 2014, Baker Hughes Inc. (NYSE: BHI) reported March 11.
The horizontal rig count, at 375, matched the lowest number of active horizontal rigs in May 2009. It was the 11th straight week horizontal rig counts have dropped, Barclays said.
Including offshore and inland waters rigs, the count had slipped to 480, the lowest tally since 488 in 1999 and the lowest count for Baker Hughes’ data stretching back to 1991.
The Permian Basin lost the most rigs, with six, but overall still operates 42% of all rigs among major U.S. shale basins. The Utica Shale, which at its height in December 2014 had 27 rigs, dropped to 11 rigs.
The Williston Basin’s production, centered in North Dakota, continued to eclipse 1 million barrels per day (MMbbl/d) despite just 32 rigs operating, the lowest tally since March 2007, the state’s department of mineral resources reported March 11.
However, in October 2012, North Dakota permitted 370 wells. In February, permitting was down to 70.
Rigs have continued to fall in the face of bristling winter oil prices and reluctance by E&Ps to spend capital on money-losing drilling. The U.S. Energy Information Administration has forecast a 106 Mbbl/d drop in U.S. shale oil production in April.
When quantified by drillers and by E&Ps, the wreckage of falling production comes out in stark relief—as does the possibility the cuts so far might not be enough to meet projections.
Seaport Global Securities analyst Ken Sill said in a March 11 report that if the first-quarter rig count holds for the rest of the quarter, the average rig count would be down 26% compared with Seaport’s estimate of 16%.
With earnings season for the first quarter nearing a wrap, Wells Fargo has compiled a list of E&Ps’ oil production guidance. Out of 55 publicly traded companies Wells Fargo scrutinized, just 11 are guiding an increase in oil production in 2016.
David Tameron, analyst with Wells Fargo Securities, said that capital budgets will continue to evolve as energy prices move.
Wells Fargo said onshore Lower 48 oil volumes for publicly traded companies will fall 7.5%, or 312 Mbbl/d, in 2016 compared to last year.
“Keep in mind that this only represents roughly approximately half of U.S. onshore production,” Tameron said, noting the remaining production is private.
“Comparing our numbers against consensus projections of a 600 MMbbl/d-650 Mbbl/d decline year-over-year, this implies that private operators would have to decline 10%, or 313 Mbbl/d, to bring our numbers in line with consensus,” he said.
Darren Barbee can be reached at dbarbee@hartenergy.com.
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