Are Rumblings of Rig Count Declines True?

Are Rumblings of Rig Count Declines True?

Rig count remains an important indicator of oil and gas activity; however, the drops in oil prices reflect a changing dynamic in the industry. With oil prices declining, many expect to see rig count drop significantly by the end of the year. Our view is that there will likely be some leveling off this year but not a significant amount until 2015 budgets are set.

This week Permian Basin is +1 compared to last week and +98 compared to last year at this time. Eagle Ford is -4 compared to last week and -15 compared to last year. Click here to see the weekly insights report.

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Our clients in San Antonio and Pleasanton expect no slow down on completion activity. Rigs may remain flat but the ratio of wells drilled per rig continues to increase due to operational efficiencies and technology gains.

Bakken remains steady at 193 rigs this week and last week but +16 compared to a year ago.   The Marcellus shale dropped 1 rig this week and is -7 compared to last year.

Mississippian shale play was +1 this week and +1 compared to last year. Niobrara is +1 this week and +13 from a year ago. These 6 shale plays account for 64% of the rig activity in the U.S. Click here to see the detail.

As companies finalize year-end plans we expect little to no change in rig counts through Q1 2015.

Oil prices hovered around $77 per barrel this week, closing today at $75.96 per barrel.

Many E&P’s have hedged their bets anticipating the decline of oil prices. Sabine O&G out of Houston has an average price of $92 per barrel for the remainder of 2014 and $90 per barrel for the 2015 calendar year. Companies that hedged like Sabine O&G will continue their 2015 drilling programs.

Companies with no hedging in place, will likely reduce active rigs and drilling programs in 2015. We have heard rumors of several large companies remaining flat or cutting back budgets by 5% to 8%.

Although drilling permits are a “cheap call option” for activity, in Texas alone there were 3,012 in September and 3,044 in October. So far in November, there are close to 800 drilling permits. It remains to be seen how this ties to seasonality. We will look further at seasonality in the coming weeks. Let us know if you have any question, thoughts, or comments.

Find out more by checking out our insights to Baker Hughes Rig Count report.

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