Active Rig Count - July 27

[dan_s]

Per Baker Hughes weekly report, the U.S. active rig count increased by 2 to 1,048 last week. 861 are drilling for oil.

During Raymond James presentation at our Houston luncheon on July 16th one of their slides jumped out at me. RJ says that the U.S. active rig count will need to increase by 210 from 2018 to 2019 in order for U.S. oil production growth to be 1.5 MM barrels per day YOY in 2019.

1. That would be a significant increase in upstream drilling budgets and
2. Those rigs don't exist today, so they'd have to be built.

The Tier One rigs that are required to drill 1.5 to 2.0 mile long laterals in the U.S. tight oil plays are in high demand and most of them are working today. There aren't another 210 Tier One rigs sitting in some warehouse, so the drilling companies (HP, PTEN, NBR) would have to build them. Tier One rigs are very expensive, so the drilling companies will want long-term contracts in place before they build them.

Quote from the HP Q2 conference call: "Our U.S. land operations benefited from higher activity and pricing as we continue to capitalize on our superior position in the sold-out super-spec market."

Here is my point: During the "Rebound Phase" of an oil price cycle, it is fairly easy to get back to the previous drilling & completion activity level because there are idle equipment and skilled workers waiting to be deployed. Once all the rigs are back to work, the drilling activity flattens out just because you run out of available equipment. As I tried to explain during my 20 minute presentation on Wednesday at our luncheon in Houston, the lofty production growth estimates by EIA and IEA may need to take this stuff into considerations.