RIG COUNT SIGN OF NEAR TERM INCREASE IN DRILLING?
GOLDMAN: On Friday, we witnessed the 'first sign' of a major turn in US oil production
Akin Oyedele businessinsider.com May 26, 2015, 8:07 AM
Last week's US oil-rig count signaled a shift for the energy industry.
Data from the driller Baker Hughes showed that the oil-rig count fell by just one. Though it was the 24th straight week of a decline, it was the slowest pace seen during this streak.
In a note published Friday, Goldman Sachs' Damien Courvalin and Raquel Ohana further point out that the horizontal oil-rig count actually increased by four, the first such weekly increase since November 26.
This is a sign drillers are starting to change their behavior following the oil-price crash, which forced companies to shut down money-losing oil-production projects.
"We believe that should West Texas Intermediate crude oil prices remain near $60/bbl, US producers will ramp up activity given improved returns with costs down by at least 20%," the Goldman analysts said. "Last week's rig count is a first sign of this response and suggests that producers are increasingly comfortable at the current costs/revenue/funding mix."
They assume that production will fall slightly through the second and third quarters before picking up in 2016 at the current rig-count level, which could turn positive in the coming weeks.
On Tuesday morning, WTI was down by less than 1% at about $59.31 a barrel.
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Replies to This Discussion
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Permalink Reply by tc on
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It will be interesting to see if the rig count really goes up or if it just has found a floor that it will bounce along for the foreseeable future. I wonder if operators are churning rigs as they lease new rigs at discounted prices and let last summer's more expensive 1 year rig leases expire. I also think we need to see an increase in completions before we see a meaningful increase in the rig count.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Yes, the fraclog overhang remains a concern. And the rig count isn't what it used to be as a barometer of industry activity. My particular interest is how the improvement in completion designs coupled with the decrease in field service and material costs has reset the Internal Rate of Return for companies in specific basins? Where is the new balance point where an increase in drilling (and production) doesn't result in a commodity price collapse? I suspect that healthy companies in the better plays will determine that point and those without those advantages will remain in their precarious positions.
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