Active Rig Count continues to fall - August 24

[dan_s]

Baker Hughes reported today that the U.S. active drilling rig count declined by 3 to another record low of 244, down 3 from the previous week and down 691 from a year ago.
> 172 rigs drilling for oil < We need ~4X more rigs drilling for oil just to hold production flat.
> 70 rigs drilling for gas < EIA is now forecasting that U.S. natural gas production will decline 12.7 Bcf per day from Q4 2019 to 83.3 Bcf per day in Q2 2021.

I get at least 1 and often 3 or 4 emails per week wanting my opinion of when will the upstream companies increase their D&C spending to put more rigs back to work.
My answer is still "NOT UNTIL NEXT YEAR".
Then they ask me why I'm so sure since oil has rebound to over $40 and now natural gas prices are heading up.
1. I follow over 50 upstream companies and NONE of them have indicated that they will be adding a significant amount to their capex spending this year.
> $40 is not a high price of oil. Only a small percentage of the drilling locations that were economic at $60 oil are economic at $40 oil.
> A few companies will add one or two rigs, but others will run out of capex money early and drop a few rigs.
2. Boards set the capex spending budgets and they know the Wall Street Gang will hammer them if they increase spending when all eyes are on generating free cash flow this year.
3. Unless the companies have leasehold drilling requirement there is no reason to add more production.
4. There will an uptick in DUC completions in November to get those wells online before year-end and counted in the year-end reserve reports.

FACT: There were over ~325 completions crews ("frac crews") working in Q1 and U.S. oil production was on decline. At under 100 frac crews working today, U.S. oil production is a STEEP decline. Most of the April/May shut in wells were back online in June/July. Now the declines will be reported week after week.

[dan_s]

Another of the regular questions I get are "How can if find a company's production mix?"
> I break it out at the bottom of each individual company forecast model & there is a table of their hedges on each forecast model.
> You can also find it in the 10Q or in the company's latest presentation.

We have three large-cap "gassers" in the Sweet-16: CRK, EQT and RRC. Others that I like are AR, COG and SWN

XEC, EOG and OVV will also get a nice revenue boost from rising gas and NGL prices.