- U.S. added 4 rigs last week continuing its recent momentum.
- Canada continued to lose 4 rigs driven entirely by gas.
- Permian dominates U.S. production growth and oil rigs continue to take market share from gas rigs.
Welcome to the Weekly Rig Count Report. The North American energy market has seen a dramatic turn of events from the sharp decline in 2014, continued weakness through 2015 and 2016, and a nascent recovery in the works that saw WTI rising above $60 in 2017. Heading into 2018 the oil market (NYSEARCA:USO) has exhibited high volatility as prices swing widely. Opportunities are abundant for investors that keep a close eye on the fast-changing industry. This report aims to provide insightful data and analysis for energy investors.
In the week that ended March 2, the U.S. rig count increased by 4 to 981, and Canadian rig count decreased by 4 to 302. Compared with the same week last year, rig count increased by 229 in the U.S. and lowered by 33 in Canada. Total rig count in North America lowered by 1 last week.
U.S. Rig Count
In the past week, we saw the U.S. added 1 oil rig and 2 gas rigs, resulting in the total rig count increase of 3 for the week.
Looking at data from 2005, rig counts are still just starting to recover from a decade low. Rig counts have reversed the cyclical trough in mid-2016 to continue climbing towards 1,000. Another secular change has been the loss of gas rigs since this downturn. Natural gas has been hit hard due to a supply glut as shale producers flood the market with gas that came out with the more valuable liquids. We see oil to continue its winning streak while gas remains weak in the months to come.
Major U.S. Basins Variances
The Permian held steady with one loss this week.
We expect any further rig additions to concentrate in Permian this year, similar to the surge of Permian in the last two years. Permian has accounted for the bulk of the recent surge in rig counts and will continue to lead any further rig counts gains in the U.S. for the years to come. Other basins such as Eagle Ford has lost its lust and will take a seat while Permian rises.
Horizontal rigs continued to account for the majority of the total rigs at work. Horizontal rigs increased by 5 while vertical rigs lowered by 8.
Canada Rig Count
Canada rig counts decreased by 4 from last week, where the 2 add in oil was offset by the 6 losses in gas. Compared to the same time last year, oil rigs added 14 while gas rigs decreased by 47. Canadian gas producers have been slashing budget aimed a prolonged downturn in Western Canada natural gas. In the meantime, Canadian oil producers continue to suffer from a widening WCS differential. However, oil rigs have been recovering while gas rigs were pulled out at an appalling rate.
Oil rigs continued to represent a larger share of the total rig count. Canadian oil rigs continued to take share from gas, consistent with previous weeks. Oil rigs are now representing the highest share of total rig counts since 2015. As we recently wrote in "Precision Drilling: Follow The Rig Count, Follow The Money" that drillers are well-positioned to benefit recovery in rig counts.
WCS differential narrowed last week. The discount received by Canadian heavy oil producers has fallen from $30 deliveries in the coming months. Canadian heavy oil production continues to suffer from the widening discount and the proposed pipelines are facing increased opposition from lawmakers and local groups. Trans Mountain is being caught up in a trade war between BC and Alberta. TransCanada is facing a last-ditch effort from environmental groups to challenge the approval from Trump. Enbridge has started construction on the Canadian side of the Line 3 Replacement Program, but it is still waiting for final approval from Minnesota.
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