U.S. oil rig count plunges for ninth straight week

 

Paul Takahashi May 8, 2020 Updated: May 8, 2020 1:08 p.m. houstonchronicle.com

 

The U.S. rig count fell for the ninth straight week, plunging to levels below the bottom of the previous oil bust, as energy companies shut down production in the face of low prices.

The number of drilling rigs in operation declined to 374 nationally, down 34 rigs from a week ago. and fell below the 404 hit at the bottom of the last oil bust in 2016, according to Baker Hughes, a Houston oil field services company. A year ago, there were 988 rigs in operation.

The U.S. rig count has plunged by 62 percent from a year ago. The count is a leading indicator of oil and gas production nationally.

Most of the rig losses this week came from Texas, where operators idled 28 rigs. Texas, home to most of the prolific Permian Basin, hosts about half of the nation’s oil and gas rigs.

Energy companies are shutting down rigs and slowing drilling on new wells after oil prices plummeted in the wake of the coronavirus pandemic, which slashed global demand for crude oil and petroleum products.

Rig shutdowns are expected to reduce domestic oil production by at least 616,000 barrels per day in May and at least 655,000 barrels per day in June. About 187,000 barrels per day were taken off the market in April, according to Rystad Energy, Norwegian oil and gas research firm which tabulated production cuts from 19 producers across the U.S.

The production cuts have come from all corners of the upstream sector, including supermajors such as Chevron and Exxon Mobil to West Texas shale drillers such as Diamondback Energy and Parsley Energy.

EOG Resources on Friday said its rig shutdowns will take 125,000 barrels and 100,000 barrels of oil per day off the market in May and June, respectively. The Houston oil and gas producer said it also is delaying completing about 150 new wells until the second half of the year.

Bill Thomas, EOG’s chief executive, said the company would rather shut down rigs and lower production than sell into a low oil price market. Even as oil prices have climbed back into the $20 range, Thomas said rig counts will be slow to return.

“We have a hard time seeing that US production will be able to, certainly in the next several years, to get back up to levels we’ve seen a few months ago,” he said.

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I know a young man who just got laid off by HAL in North Dakota. He says that there have been ~6,500 wells shut in up there just recently.

The oil crash will hit the field service industry particularly hard.  Both Halliburton and Schlumberger alone will lay off thousands of workers.  That whole segment of the upstream industry will shrink permanently as energy companies pressure sub-contractors to reduce costs so that companies can be profitable at depressed crude prices.  The question is whether this bust will be followed by a boom?  Or be indicative of a new normal driven by reduced and falling demand.

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