BLOG: Day Of Reckoning in 2018? US Rig Count Poised For Loss
Unless they’re missing something – and really, that’s pretty unlikely – analysts at Barclays believe U.S. oil and gas will lose as many as 100 onshore rigs by the end of the year.
As of June 16, there were 933 rigs at work in the United States – that’s up 270 rigs since January. But as rigs efficiency reverses and oilfield service costs trend upward, fewer rigs will remain active during the remainder of the year, Barclays said in a June 20 note to investors.
In fact, for the rig count to linger above 900, exploration and production (E&P) companies would have to increase spending by 70 percent this year and well costs would have to flip and actually decline. Neither is a likely scenario.
“The math all points in the same direction … down,” Barclays said, adding that the downward trend could last several quarters.
Most of the publicly traded E&Ps and majors have met their rig targets for the year, and with oil prices faltering, additional spending is doubtful.
As Barclays explained, high-grading the characterized the downturn is wearing off and operators are now drilling longer laterals, which can take twice as long to complete a well as it does to drill it. That’s especially the case in the Permian where operations are moving into the Delaware, where pad drilling is used less than elsewhere in the basin.
“Well costs are arguably the biggest point of contention between E&Ps touting structural cost gains and service companies clawing back pricing,” they said. “Overall, well costs appear fairly flat this year, though signs of increases are starting to build.”
All of which doesn’t really change much this year. Completions, which make up about up two-thirds of the well cost, need to catch up to a rig count that got ahead of itself. Meanwhile, E&P budgets haven’t changed, a key metric to gauge service costs.
“That’s why we’re more concerned about 2018,” Barclays said.
To be sure, E&Ps appreciated the lower well costs during the leanest months, and that fueled the boom in activity. But with a rig count that grew perhaps too fast, it’s setting up a challenging year ahead.
“It has also led to a false narrative that shale is economic below $50 per barrel,” Barclays said. “We think that day of reckoning comes in 2018 as oil inflation rears its head, budgets get pinched and E&Ps become more discerning in growth programs.”
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.
- The Rigzone Interview: Private Equity Cash Focuses on Oil, Gas Development
- Could Argentinian Politics Beat the Vaca Muerta?
- The Rigzone Interview: Oil, Gas Goes Digital for Safety, Speed
- Deal Of The Month: EQT, Rice Energy Merge in Mega Marcellus $6.7B Gas Deal
- OpEd: OPEC Production Cuts Fail, Markets Pay for Underestimating US Shale
- ExxonMobil Racks Up Discoveries in Guyana Block Eyed by Chevron
- Oil Market Sentiment Has Improved Significantly
- EU, US Eye Collaboration on Nuclear Materials
- EU Electricity Export to Ukraine Up 94 Percent in Two Years
- China Coal Output Falls for First Time since Government Ordered More
- USA Driving Activity to Increase to All-Time Highs
- BP Pulse Buys One of Europe's Largest Truck Stops
- UK CCUS Plans Outdated: Think Tank
- TC Energy to Sell Prince Rupert Gas Pipeline Project to First Nation
- I Squared Eyes Full Ownership of Europe Gas Storage Firm
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- EIA Drops 2024 Henry Hub Gas Price Forecast
- EIA and Standard Chartered Offer Up Latest Oil Price Predictions
- Red Sea Region Sees Another Watershed Incident
- Chevron Oil Project in Kazakhstan to Cost $48.5B
- OPEC Voices Encouragement after IEA Affirms Support for Oil Security
- Biden Govt Bares Strategy for Freight Charging, Hydrogen Fueling Infra
- Ukraine Hits Third Russian Refinery In Escalating Drone Strikes
- Rystad Looks at the Buzz Around White Hydrogen
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Is Peak Oil Demand Close?
- Vessel Sinks in Red Sea After Missile Strike
- JP Morgan, Standard Chartered Reveal Latest Oil Price Forecasts
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Rystad Forecasts Net Production of Top Permian Producers in 2024
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension