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American Oil Drillers Add Even More Rigs

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According to a report Friday, American drillers added rigs for the fourth week in five weeks. The addition comes in the best month of producers returning to the well pad since August and indicated that an almost two-year slump in drilling may have ended.

Eleven oil rigs were added the week to July 1, totaling the final count of oil rigs to 341. According to Baker Hughes Inc., this is down from the 640 that were counted in 2015. Previously, rigs had only been added four out of 25 weeks this year, averaging about eight rigs per week for a total of 206. In 2015, an average of 18 rigs were added weekly for a total of 963, the largest drop on record since 1988.

After sinking from 1,609 since October 2014 amid the generation’s largest oil rout, the rig count has begun slowly rising. Meanwhile, producers have increased spending since crude prices have remained about $50 per barrel since May, a key level that analysts predicted would prompt a return to the well pad.

This week, crude futures were mostly flat at about $48, but they have soared 26 percent over the last three months, making the second quarter the best one in the last seven years. Looking ahead, futures for the balance of 2016 were trading under $50 and 2017 was under $53.
Analysts at Evercore ISI, a U.S. banking advisory, issued a statement this week saying, “The worst is behind us and a modest recovery in spending is now underway,” predicting producers in North America would increase capital expenditures by no less than 25 percent in 2017 and most likely another 30 percent in 2018. Evercore stated its $50 price prediction suggests the rig count will improve to roughly 620 by the end of next year.

Energy specialists at Piper Jaffray, Simmons & Co, upped its price prediction to $60 for 2017 and $70 for 2018. This would raise cash flow and enable producers to spend more on drilling, result in even more production. With higher prices predicted, Simmons & Co believes oil and natural gas rigs will surge up to almost 1,100 by the end of 2018 as opposed to its original estimated number of 850-900.

Oil and gas rig count fell to 404 in May, the lowest since 1940. According to Baker Hughes data, the count shot up by 10 to 431 in the week of July 1. Rig count is just one of many gauges of future production.

Other gauges include drillers’ ability to obtain more out of each well and the completion of DUCs (drilled, but uncompleted wells). Crude production is projected to drop from 9.4 million barrels a day in 2015, the highest since 1972, to 8.6 million barrels a day in 2016. According to the latest estimates, 2017 is expected to fall to 8.2 million.

Article written by HEI contributor Briana Steptoe.

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