Musings: Falling Rig Count Gives Hope For Oil Industry Recovery

Musings: Falling Rig Count Gives Hope For Oil Industry Recovery
Below the surface, there may be some variances in the pace of decline of the various drilling rig types that could moderate the optimism of a quick production reaction.

This opinion piece presents the opinions of the author.
It does not necessarily reflect the views of Rigzone.

Another week and another huge drop in the Baker Hughes oil-directed drilling rig count. The speed with which the rig count is dropping has encouraged forecasters to translate the decline into an immediate fall in oil output. The focus of analysts has been on the oil rig decline since the world is absorbed with determining when either Saudi Arabia cuts its production to boost global oil prices from current levels or the American shale industry cuts back drilling sufficiently that the natural decline rate of shale wells eliminates the existing oil surplus.

The chart of the count of active oil drilling rigs since the turn of the century shows an almost vertical decline in recent weeks. The angle of this oil rig decline is sharper than occurred in the 2008-2009. On the surface, this picture would support the view of a rapid decline in new oil production. Below the surface there may be some variances in the pace of decline of the various drilling rig types that could moderate the optimism of a quick production reaction.

Musings: Falling Rig Count Gives Hope For Oil Industry Recovery
Oil Rig Count Decline Sharper Than 2008

In Exhibit 21 we plotted the change in the weekly rig count since Thanksgiving by whether the rigs were drilling directional, horizontal or vertical wells. In the first couple of weeks, there seemed to be little or no reaction to the start of the collapse of oil prices following the Thanksgiving Day meeting of the Organization of Petroleum Exporting Countries (OPEC) at which the members agreed to sustain the organization’s 30-million-barrel a day production level. The announcement of that decision caused one of the largest one-day drops in global oil prices and started the industry on the slide into its current recession.

When the rig count started to reflect decisions by producers in response to the fall in oil prices, we see all types of rigs shutting down, although directional weeks seemed to be leading the pace. Slowly the pace of decline of rigs drilling vertical wells accelerated. Finally, the rigs drilling horizontal wells started falling rapidly, although there were certainly more of them at work initially.

Musings: Falling Rig Count Gives Hope For Oil Industry Recovery
ypes Of Wells Not Being Drilled Is Important


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WHAT DO YOU THINK?


Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.

Terry  |  February 12, 2015
Unfortunately, the US government IS awake. It is just that the Obama administration is doing everything it can to destroy the domestic US oil & gas industry, and to undermine American energy security internationally. But, thats what we citizens get for failure to elect an AMERICAN as President!
Doug  |  February 10, 2015
Why is the United States allowing Saudi Arabia or OPEC or any one else decide how much oil is going to be imported in and at what cost? It is proven that the U.S. now can be totally self supportive in regard to OIl and oil Exploration. Why do we not put a Tax on imported oil to meet the cost of production and exploration here in the United States? Once again literally Thousands of Americans are going to be out of work because we allowed Foreign Oil prices to rule what happens here in the United States. Can someone explain to me how prices can fall so drastically in just a couple of months and yet take years to recover? This makes no sense to me either. I have been through 3 of these Boom and Bust things in my 35 years in the OIl and Gas fields, and I for one am tired of it. No other industries market explodes and dies like this one. What does it take to get our government officials to wake up?


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