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U.S. drillers cut oil rigs for third week in a row

January 10, 202011:32 AM Reuters0 Comments

Apache oil well in the Permian Basin
Apache oil well in the Permian Basin
U.S. energy firms reduced the number of oil rigs operating for a third week in a row as producers follow through on plans to slash spending on new drilling for a second year in a row in 2020.

Drillers cut 11 oil rigs in the week to Jan. 10 in the biggest decline since October, bringing the total count down to 659, the lowest since March 2017, energy services firm Baker Hughes Co said in its closely followed report on Friday.

In the same week a year ago, there were 873 active rigs.

In 2019, the oil rig count, an early indicator of future output, dropped by 208 rigs as independent exploration and production companies cut spending on new drilling as shareholders seek better returns in a low energy price environment.

Even though the number of rigs drilling new wells fell last year, U.S. oil output continued to increase in part because the productivity of remaining rigs – the amount of oil new wells produce per rig – has increased to record levels in most big shale basins.

The pace of production growth, however, has slowed.

The U.S. Energy Information Administration projected crude output rose to 12.3 million barrels per day (bpd) in 2019 and would increase to 13.2 million bpd in 2020 from a record 11.0 million bpd in 2018.

U.S. crude futures traded around $59 per barrel on Friday, putting the contract on track to fall about 6% for the week due to an easing of Middle East tensions after a U.S. drone strike killed Iranian general Qassem Soleimani on Jan. 3.

Looking ahead, U.S. crude futures were trading around $58 a barrel for the balance of 2020 and $54 for calendar 2021 . That compares with an average of $64.90 in 2018 and $57.04 in 2019.

U.S. financial services firm Cowen & Co said 24 of the independent exploration and production (E&P) companies it watches reported spending estimates for 2020.

Cowen said there were 18 decreases, one flat and five increases, implying a 13% year-over-year decline in 2020. This does not include majors, which represent 13% of the rig count and could be flat to up from current levels.

The number of U.S. gas rigs, meanwhile, fell by four to 119, the lowest since December 2016.

As most companies are not looking for gas, which is mostly a by-product of oil drilling, the oil-to-gas ratio has surged to its highest in six years, and could increase further as analysts expect average gas prices to fall for a second consecutive year in 2020 to their lowest level in over 20 years.

Year-to-date, the total number of oil and gas rigs active in the United States has averaged 789. Most rigs produce both oil and gas.

Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray, forecast the annual average combined oil and gas rig count will slide from 943 in 2019 to 816 in 2020 before rising to 848 in 2021.

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