According to a report released by Simmons & Co. International in early December, the total US rig count is down 206 rigs from its peak in late 3Q. In and of itself, that looks like bad news, but the kicker is that the analysts believe the count needs to contract further. Parks Paton Hoepfl & Brown, energy investment bankers, concur with Simmons & Co.’s view. Applying the pattern of the 1982-1983 decline period to the current market, the group concluded that the rig count, which peaked in September at slightly over 2,000 working rigs, would fall to a low of about 1,000 rigs, or approximately a 50% correction. The numbers are alarming, and they could be dismissed as simply alarmist if others were not making similar projects. The Simmons and Co. report says that in order to rebalance the market, more than 500-1,000 rigs need to be let go by E&P companies. The question is not “if” rigs should be let go, the report says, but in what manner. In their view, a quick reduction could yield a negative production response, while a slow and methodical reduction could result in continued production growth in the short term and a longer lag between rig count contraction and natural gas production response. However you look at it, this is not good news for drilling contractors, and it doesn’t appear to be good news for the industry as a whole either.
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