Shale Drillers Are Auctioning Off Rigs at Bargain Basement Prices

By Alex Kimani - May 17, 2023  Oilprice.com

• FT: oil drilling equipment is being auctioned off due to lack of demand.
• According to Baker Hughes data, U.S. oil and natural gas rig count has declined 6% in the year-to-date to 731 last week.
• Especially the dropoff in natural gas drilling has surprised analysts.

The much-touted second shale boom has lately been getting a reality check as equipment demand declines sharply, a worrying sign that drilling in U.S. shale energy regions is leveling off. 

The Financial Times has reported that next week, Texas auctioneer Kruse Asset Management will auction off two unused, top-of-the-line drilling rigs valued at $40 million and $30 million when built in 2019 at starting bids of just $12.9M and $2.3M, respectively.

“There’s no reason for them to be so cheap, but there’s just no demand,” Dan Kruse, chief executive of Kruse Asset Management, has told the Financial Times.

According to Baker Hughes data, U.S. oil and natural gas rig count has declined 6% in the year-to-date to 731 last week, reversing a steady climb since the depths of the pandemic. The current tally is a far cry from the nearly 2,000 rigs that were running around mid-2014 at the peak of the shale boom. Last week, rig count for gas-directed rigs dropped by 16, or 10 per cent--the steepest weekly fall since 2016. Expectations for another shale boom are getting tamped down due to rising costs as well as limited supplies of labor and equipment that continue to hamstring efforts by U.S. shale producers to quickly ramp up production.

Still, a number of experts have predicted that U.S. production will continue growing. A week ago, the Energy Information Administration (EIA) forecast U.S. crude production will rise about 5% in 2023, while fuel demand will increase 1%.

U.S. crude oil exports for the month of April surpassed forecasts, hitting a record 4.5 million barrels per day in March thanks to a strong Chinese market due to rising fuel demand. U.S. crude exports grew 22% last year from 2021 after Russia's invasion of Ukraine led the U.S., the EU and Canada to ban imports of Russian oil and dramatically altered global flows. 

China is the world’s second largest oil consumer, and has recorded an economic resurgence ever since it rolled back its strict zero-covid policies. April exports to China surged to ~850,000 barrels per day, the highest level since May 2020.

By Alex Kimani for Oilprice.com