U.S. Drilling Retreat Deepens as Oil Rigs Fall Below 900
by Lynn Doan 1:15 PM EDT March 13, 2015
(Bloomberg) -- U.S. oil explorers idled oil rigs for the 14th straight week, prolonging the biggest retrenchment in drilling on record.
Rigs targeting oil in the U.S. fell by 56 to 866, Baker Hughes Inc. said on its website Friday, the lowest level since March 25, 2011. The Permian Basin of Texas and New Mexico, the nation’s biggest oil field and one of its oldest, lost the most, dropping 23 rigs to 305. The U.S. rig total slid to the lowest since November 2009.
The country has sidelined 709 oil rigs in 14 weeks as a price collapse has prompted the nation’s energy producers to cut billions in spending and eliminate thousands of jobs. The retrenchment threatens to slow the shale boom that turned the U.S. into the world’s largest fuel exporter. Oil analysts, traders and investors have been monitoring rig counts to determine when output will retreat enough to balance the market.
“At the rate we’re going, where we’re dropping more than 200 rigs a month, we could get to 700 by the end of April before we bottom out,” Eric Mintz, who co-manages more than $10 billion in assets at Eagle Asset Management Inc. and has focused on energy investments for over a decade, said by phone. “We’ve seen a demand response here in North America, and I do think we could snap back by the end of the second quarter.”
The U.S. benchmark West Texas Intermediate oil for April delivery fell $2.21 to settle at $44.84 a barrel on the New York Mercantile Exchange, down 58 percent from the 52-week high of $107.73 reached June 20.
Drilling Cutbacks
Drilling cutbacks have yet to make a dent in U.S. oil production, which has continued to top records because of bigger and higher-yielding shale wells. Output rose 42,000 barrels a day in the seven days ended March 6 to 9.37 million, the highest rate in weekly Energy Information Administration data going back to 1983. It’s forecast by the EIA to average 9.35 million this year, the highest since 1972.
Goldman Sachs Group Inc. said in a March 8 research note that the U.S. was still running enough rigs to boost U.S. oil production 290,000 barrels a day by the fourth quarter compared with a year earlier.
Crude stockpiles swelled 4.51 million barrels to a weekly record 448.9 million as of March 6, taking up 62 percent of the country’s storage capacity, EIA data show.
Adding to the glut is rising output from the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of the world’s oil. OPEC members including Saudi Arabia, its biggest supplier, boosted output in February.
OPEC Production
The group will maintain its policy at its next meeting unless other producers cut first, Abdullah bin Hamad al-Attiyah, who was Qatar’s energy minister from 1992 to 2011, said at the Doha Energy Forum March 10.
Jozef Lieskovsky, a senior analyst at EIA in Washington, said on March 10 that U.S. oil production was already reaching an “inflection point” at which, barring a sudden rebound in drilling, output from shale regions will begin to decline.
Onshore drilling permits issued in the U.S. slid to 3,456 in February, down 41 percent from a year earlier, according to Evercore ISI. U.S. oil production may fall by the end of the year, Evercore ISI analysts including James West said in a March 10 report.
The rigs left drilling in Texas’s Eagle Ford formation and the Williston Basin, home to North Dakota’s Bakken shale, aren’t enough to sustain current production, and output may drop next month, James Williams, president of energy consulting company WTRG Economics, said by phone on Friday from London, Arkansas.
500 More
If the U.S. drilling downturn in 2008 and 2009 is any indication, energy producers still have 500 more rigs to lay down, Allen Brooks, managing director at the Houston-based energy investment bank PPHB Securities LP, said in a report on March 10. That would probably take seven to eight weeks, he said.
“The good news from this analysis is that we may be nearing a bottom in the rig decline,” Brooks said. “The bad news is we don’t know when or how fast the rig count might rebound.”
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