Weekly U.S. Oil Rig Count: Drilling And More Drilling

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Includes: BNO, DBO, DNO, DTO, DWT, OIL, OILK, OILX, OLEM, OLO, SCO, SZO, UCO, USL, USO, UWT
by: Orangutan Capital

Summary

A fourth week of robust increases in the rig count.

Very large year-to-date jump in the oil rig count and in several basins.

Strong activity in shale producing regions outside of the Permian.

Another week of robust increases in the rig count, not only in the Permian but also in shale producing regions. By now it's clear that financing is available in shale producing regions, with Cana Woodford and Eagle Ford leading the way.

Crude oil prices (NYSE: USO) closed unchanged compared to the previous week but exhibited more volatility than in recent weeks centered with a drop on the date of the Weekly EIA Inventory Report and a rise following Trump's announcements about Iran.

Source: Finviz.com

Data:

Source: Baker Hughes

* Total U.S. rig count (oil + gas) increased by 12, which makes for a four-week increase in the rig count of 82.

* The total oil rig count increased by 8, which makes for a 4-week increase of 69 rigs, the largest since April of 2011.

In total, oil rigs are up by 87% since the bottom in late May 2016. Virtually all of the rigs added have been horizontal.

* Horizontal rigs increased by 11, with at least 9 being classified as oil rigs. There have been 70 horizontal rigs added during the last four weeks. This is the largest four-week increase in horizontal rigs since February of 2010.

In total, the horizontal rig count is up by 93% since the bottom in late May 2016. Most of these rigs have been oil rigs.

*Source: Baker Hughes, Orangutan Capital

Strong activity outside of the Permian for a fourth week in a row.

* The Permian oil rig count increased by 6 to end above 300 for the first time in almost two years. Adjusted for improvements in technology and availability of sweet spots, the current rigs should not be that far away in terms of total productivity than those of the shale boom years, with the exception possibly of 2014. In fact, we believe that at the current rig count level, the better spots in the Permian are probably already producing oil, so further increases to the rig count in this basin will have lower impact in terms of actual output going forward.

In total, the rig count in the Permian is up by 128% since the bottom in late April / early May 2016. Virtually all of the rigs added have been horizontal.

* Eagle Ford added 3 weeks during the week. This is an area where financing is starting to flow again. Since the beginning of the year 14 new rigs have been added for an increase of 35% in 2017 alone.

* Cana Woodford which has seen a lot of activity in the last four weeks, dropped 5 rigs. The rig count is still up by 42% since the beginning of the year.

* The natural gas count increased by 4 this week, with increases of one rig in the Haynesville basin, 2 rigs in the Marcellus shale and a drop of 2 rigs in the Utica basin.

Conclusion:

Increases in the rig count and therefore in production are now unstoppable, with financing widely available not only in the Permian but also in select shale producing regions.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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