U.S. energy firms this week added oil rigs for the first time in four weeks even as the pace of growth in record crude output is expected to slow.
Companies added 14 oil rigs in the week to Jan. 17, bringing the total count to 673, Baker Hughes said in its weekly report. In the same week a year ago, there were 852 active rigs.
In 2019, the oil rig count, an early indicator of future output, dropped for the first year since 2016, as independent E&P companies cut spending on new drilling as shareholders seek better returns in a low energy price environment.
The U.S. Energy Information Administration (EIA) this week projected the pace of oil production growth would slow to 3% in 2021, the lowest since 2016 when output declined. That compares with projected increases of to 9% in 2020 to 13.3 million barrels (MMbbl) and 18% in 2019 to a record 12.2 MMbbl.
“As operators continue to be constrained by free cash flow generation capabilities, they will take a more modest approach to their activities in the coming years, but lower service costs and productivity will keep some of the growth alive,” analysts at Enverus said in a report this week.
Schlumberger Ltd. on Jan. 17 outlined an aggressive cost-cutting plan for its North American operations as the world’s largest oilfield service firm contends with sharp declines in U.S. shale activity.
U.S. crude futures traded above $58 per barrel on Jan. 17, putting the contract on track to decline about 1% this week as sluggish economic growth in China, the world’s biggest crude importer, raised concerns over fuel demand and countered optimism from the signing of a China-U.S. trade deal.
Looking ahead, U.S. crude futures were trading around $57 per barrel for the balance of 2020 and above $53 for calendar 2021. That compares with an average of $64.90 in 2018 and $57.04 in 2019.
U.S. financial services firm Cowen & Co. said 24 of the independent E&P companies it watches reported spending estimates for 2020.
Cowen said there were 18 decreases, one flat and five increases, implying a 13% year-over-year decline in 2020. This does not include majors, which represent 13% of the rig count and could be flat to up from current levels.
Analysts said the most core projects will move forward, while shorter-cycle developments will see the most dramatic investment cuts.
Oil and gas producer Cairn Energy on March 27 reduced investment plans by about a fifth, following the fall of oil prices to less than $30 per barrel.
Aker BP, 30% owned by BP, said on March 23 it would cut its planned 2020 capital spending by 20% but kept its production guidance unchanged.