The U.S. oil and gas rig total fell last week to an even 900, down 19, on Thursday. It dropped the lowest total since mid-March 2017.
This downturn comes on the eve of the periodical conference call season that typically provides clues on forward E&P activity. These are notably expected now amid a current cloudy outlook for crude prices.
The decrease came nearly from oil-directed rigs, which dropped 18 to 724 this week. Also, gas-directed rigs stayed at 171 one week. There was also a loss of one rig, not classified as oil or gas.
The single massive change in rig counts came from the “Other Basins” category. Besides, it was down nine rigs to 180. These are rigs that are mainly in smaller conventional basins often occupied by private operators. These are more commodity-price sensitive.
Fort Worth, Texas, shows a massive drop, where rigs decreased from 12 last week to 6. Besides, analysts usually don’t trust week-to-week swings in the rig count. This can be affected by any number of individual firm decisions.
The biggest changes in rig count amount the eight most outstanding U.S. plays came from the Permian Basin of West Texas, and SCOOP-STACK in Oklahoma. Both basins lost three rigs each, dropping totals of 409 in the Permian and 50 in the STACK.
The Dry Marcellus Shale, a large gas basin mostly in Pennsylvania, lost two rigs, leaving 23.
Moreover, three other basins lost one rig each. As a result, the Haynesville and the Williston have 55 rigs each, while the D-J has 24.
Eagle Ford Shale and the Wet Marcellus remained steady week-on-week at 70 and 17 rigs, respectively.
The U.S. Oil and Gas Capital Discipline
Jagged Peak Energy let Permian Parsely Energy acquire almost $2.3 billion from them.
Evercore ISI analyst says they note CAPEX spending levels from the combined company tend to be lower than the stand-alone entity.
Also, the capital discipline E&P firms continue to demonstrate a change from the North American operating environment.
E&P Companies have always expected consolidation. But also Evercore ISI would see more small and midcap consolidating agreements in oilfield services.
Consistently low oil prices that have not returned to anywhere almost high double-digit to triple-digit levels of 2014. These are behind upstream firms’ extreme conservatism in recent years.
In 2018, WTI prices remained around the $60s/b level and even shortly reached the mid-$70s/b. Also, Brent was in the high $60s/b and $70s/b and was playing with mid-$80s/b. But U.S. unconventional production growth was larger than expected. Also, other geopolitical events suggested the world had a bounty of oil supplies with more om the way.
As a result, oil prices fell late last year, and while they recovered some, they did not return to 2018 levels.
Furthermore, this has caused oil firms to control capital spending. In turn, analysts expect more upstream consolidation, particularly among small to midcap operators.
Transactions will give size and scope to the combined firms in big U.S. unconventional basins. These are opportunities for further efficiencies and cost-cutting. CAPEX will suffer, putting additional pressure on an already squeezed service sector.