THE LOWEST U.S. RIGS
The total US rig count, which on Friday stood at 476, is now at its lowest point ever in the 67-year history of the Baker Hughes numbers, according to data released by the oilfield service company.
That is down by four from last week and down from 1,069 working the same week in 2015 and a recent peak of 1,931 in late 2014. The previous low was 488 in April 1999, Baker Hughes records show.
Meanwhile, the US oil rig count posted its first gain in three months, rising by one to 387 amid speculation that a recent rally in crude prices could signal that a long-awaited industry turnaround may be at hand.
The 387 oil rigs this week were down 53% from 825 the same week a year ago, and a recent peak of 1,607 in late 2014.
Also, the Eagle Ford Shale in south Texas, one of the US' largest oil plays, gained three rigs this week to 40, although this was about a third of the 122 rigs employed there the same week in 2015, Baker Hughes data show.
"I think we're close to the bottom" of the down cycle, Griffin Securities analyst Kevin Simpson said, although he added he did not expect a pickup in drilling "quite this early."
"Companies have obviously scaled their operations to a lower price than we are at now," and are cautiously watching US and international production and demand estimates for signs of market balance, Simpson said.
Oil prices that began sliding in mid-2014 from $100/b and reached the mid-to-high $20s/b earlier this year have now picked up to around the $40/b level.
On Friday, front-month NYMEX crude futures settled down 76 cents to $39.44/b. The same day, NYMEX futures for March 2017 settled down 20 cents to $44.79/b.
The rig count has fallen steeply since the beginning of this year as production companies slashed capital budgets in response to oil prices that briefly dropped into the $20s/b in January. For example, the year began with nearly 700 total rigs but dropped to 664 the first week and ended January with 619.
Capital budgets have dropped by 40% to 50% on average, and by even more for some operators.
"Pricing pressure continues ... as the companies cannot re-size fast enough and don't want to inhibit their ability to respond to the inevitable upturn," Evercore ISI analyst James West said in an investor note last week.
Most oilfield service executives appear to "have progressed to the final stage of grief--acceptance," West said. "Whereas E&P [companies] remain trapped in the denial stage."
Simpson said that despite the net one-rig gain for US oil rigs, he expects the rig count may go "somewhat lower."
But when companies begin adding rigs, they will most likely work on their inventories of drilled but uncompleted wells, popularly called DUCs, which they built up over the last year or so as oilfield service costs came down. Operators did not complete the wells, though, because they did not want to sell some of their best oil into a low-priced market.
"We're not going to see any meaningful flow of capital come back into the sector until the spring redeterminations" of recalculated bank borrowing bases that begins next month, Simpson said.
"The first incremental capital spent will really be on the DUCs," he said. "That's your fastest source of cash flow."
In the two other large US basins this week, rig dropoffs were minimal.
The Permian Basin in West Texas and New Mexico was flat at 150 this week, although down from 285 the same week a year ago. And the Williston Basin, where the big Bakken Shale is located, fell off by one rig to 31, down from 99 rigs during the same week in 2015.
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