Active Rig Count - Feb 26

[dan_s]

The North American active rig count continues to fall and, based on all of the company reports I've been reading, it will continue to fall well into the 2nd quarter.

The total North American active rig count fell by 43 last week. -12 in the United States and -31 in Canada.

Rigs drilling for oil in the U.S. dropped 13 to 400, compared to 986 a year ago and 1,609 in October, 2014.
Rigs drilling for gas in the U.S. increased by 1 to 102, compared to 280 a year ago.

[letitfly]

Dan--- drilling extraction techniques have improved substantially the past few years. Therefore, how does that impact the argument that the drilling rig count has decreased substantially ? If companies can extract and produce more with fewer rigs, how can one properly evaluate the large rig reduction?

[dan_s]

That's true, but they haven't doubled. Today we have 25% of the rigs drilling that we had at the peak in mid-2014. My SWAG is that we need at least 800 rigs drilling for oil just to hold U.S. production flat. Keep in mind that as more and more of our production comes from horizontal shale wells the annual decline rate on existing wells increases.

My take, based on EIA's Drilling Productivity Report (see: http://www.eia.gov/petroleum/drilling/#tabs-summary-2 ), is that U.S. oil production will decline by 1,000,000 bbls per day from December, 2015 to December, 2016. Onshore oil production will fall by 1.2 MMBOPD offset by 0.2 MMBOPD increase in Gulf of Mexico production.

Note on the EIA report above that U.S. natural gas production is declining by ~0.5 Bcfpd each month. As I discussed that our luncheon in Houston yesterday, I now expect the U.S. natural gas market to be 6 to 8 Bcf per day tighter when next winter rolls around. That will have a significant impact on our gas market.

A lot of the U.S. gas production is "associated gas" from oil wells. That is on steep decline.

EOG plans to complete 270 new wells this year, but they expect total production to decline by 5%.