Musings: Falling Rig Count Gives Hope For Oil Industry Recovery
Between November 26, 2014, and last week, the industry lost rigs drilling 59 directional wells, 283 horizontal wells and 119 vertical wells. On a percentage basis, the declines were 30.4%, 20.6% and 33.8%, respectively. What we take away from these figures is that we are on the cusp of the decline in oil production growth. Vertical rigs are often used to deep the top section of horizontal wells with the main portion drilled by larger rigs (horizontal). Efforts to improve drilling efficiencies and lower well costs have led to this rig specialization. The recent pattern in the rig declines suggests that pad drilling is only beginning to be impacted, which is good news for the optimists who believe this will be a short industry downturn.
So far, the industry has laid down 461 rigs since Thanksgiving Day week. Oil rigs will continue to fall until the industry has shut down enough rigs to truly impact oil production growth, and unfortunately that may take a while. We would not be surprised to see another 300+ rigs shut down before production starts to slow. We will continue to watch the nature of the wells being drilled. We also need to examine where the rigs are falling to further gauge how fast oil production may fall and oil prices respond.
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