Active Rig Count

[dan_s]

The U.S. active rig count peaked at 1,609 in October, 2014.

Raymond James Energy Stat February 6, 2017: U.S. Rig Count Estimates Moving Higher, but Still Limited by Frac Capacity

With oil prices now back up to the mid-$50s/bbl and the U.S. rig count now up over 80% from the May 2016 bottom, investors are
beginning to ask how much further the U.S. rig count can run before it runs out of steam. There are many variables that will influence the
answer to that question but the big considerations are 1) oil prices, 2) E&P cash flows available to drill, 3) access to capital markets, and 4)
bottlenecks in the oilservice supply chain. Given our bullish outlook for the first three of these variables, we remain convinced that
bottlenecks in the oilfield service supply chain will be the limiting factor to U.S. oilfield activity growth over the next few years.

After exhaustive conversations with oilservice providers and industry insiders, we continue to hold the belief that the combination of 1)
increased frac intensity per well and 2) pressure pumping equipment attrition will constrain the industry’s ability to respond to a rising
oil price environment well into 2019. Because of these anticipated oilfield bottlenecks, we believe oilfield pricing is poised to average
about 30% higher over the next year. This is meaningfully higher than most E&P companies and oilfield service analysts are modeling.

It was concerns over these emerging bottlenecks that led us to lower our U.S. rig count estimates last September to 800 average rigs in
2017 and 1,100 rigs in 2018. While the U.S. rig count tracked virtually right on top of our estimates through December, an accelerated pace
of recovery over the past month has now encouraged us to modestly raise our 2017 estimates from 800 average rigs to 850 average rigs
(due to a faster front end recovery) as shown below. We are keeping our 2018 estimates the same at 1,100 average rigs.
----------------------------
Bottom Line: Well level economics in the Permian Basin and SCOOP/STACK are very good at $50 oil because of much lower D&C costs than we had a few years ago, combined with better well results. Longer laterals and a lot more sand per well are the primary reasons for better well results. If D&C costs move up 30%, then only the best Tier One leasehold will be economic in most areas of the U.S.