U.S. energy firms last week added oil and natural gas rigs for a fourth week in a row as the federal government seeks more production to help allies wean themselves off Russian oil and gas after Moscow invaded Ukraine on Feb. 24.
The Kremlin calls its activities in Ukraine a “special military operation.”
The oil and gas rig count, an early indicator of future output, rose four to 693 in the week to April 14, its highest since March 2020, energy services firm Baker Hughes Co said in its closely followed report on Thursday.
U.S. oil rigs rose two to 548 this week, their highest since April 2020, while gas rigs rose two to 143, their highest since October 2019.
Even though the rig count has climbed for a record 20 months in a row through March, weekly increases have mostly been in single digits and oil production is still far below pre-pandemic record levels as many companies focus more on returning money to investors and paying down debt rather than boosting output.
“The oil and gas industry is seeing mounting political pressure to increase drilling in the wake of Russia’s attack on Ukraine, including a new ‘use it or lose it’ proposal by President (Joe) Biden regarding federal leasing,” analysts at East Daley said, noting “Multiple constraints (labor, steel, sand) are likely to limit more rapid gains.”
U.S. crude production was on track to rise from 11.2 million barrels per day (bpd) in 2021 to 12.0 million bpd in 2022 and 13.0 million bpd in 2023, according to federal energy data. That compares with a record 12.3 million bpd in 2019.
But with oil prices up about 40% so far this year after soaring 55% in 2021, a growing number of energy firms said they plan to boost spending for a second year in a row in 2022 after cutting drilling and completion expenditures in 2019 and 2020.
The 2021 spending increase, however, was small and much of it went toward completing wells drilled in the past, known in the industry as drilled but uncompleted (DUC) wells.
Analysts said the industry must drill new wells going forward because the number of DUCs available was dropping fast.
That drilling increase was likely already coming, at least in the nation’s biggest oil shale basin, the Permian, in Texas and New Mexico.
“The surge in permitting activity (in the Permian) positions the industry for continuous rig count additions in the second half of 2022 and foreshadows a significant increase in supply capacity from early 2023,” said Artem Abramov, head of shale research at Rystad Energy.