13th March 2015
The Baker Hughes U.S. onshore rig count continued its decline this week, falling by 64 compared to drops of 75 and 42 for the prior two weeks. The rig count has now declined by 799 (43%) from a November 2014 high of 1,876, to 1,077 on 13 March 2015. If the fall continues on its current trajectory, it looks like it may head below 1,000 by the end of March, and actually fall by 1,000 during April.
The Permian Basin led the pack with a drop of 22 rigs, bringing total rig count to 311 from a 2014 high of 562 (drop of 45%). Eagle Ford rigs were down 3, compared to drops of 8 and 3 in the prior two weeks. The Williston Basin (Bakken) dropped 4 compared to drops 3 and 12 in the prior two weeks. Rigs active in the Gulf of Mexico dropped 3, bringing the total to 46. Although not as marked as the onshore, the Gulf of Mexico is now down almost 30% from its 2014 high.
Changes this past week place the GCA Index for U.S. onshore rigs at 60, 44 points down on the 2014 high and 4 points down on the previous week. This is still right on the 2008-2009 trend, but oil rig indices for key basins dropped another 1 to 4 points which placed the key basins at 57 (Permian, Williston) and 60 (Eagle Ford).
U.S. oil inventories reached yet another high approaching 450 million barrels, with the price of WTI sinking week-on-week to US$ 45/Bbl vs. 50/Bbl plus last week on news of the inventory rise. As U.S. dollar continues to strengthen against Euro, Brent is currently at US$56/Bbl, with the Brent-WTI spread stays at around $10-$11/Bbl as of close of business Friday.
The EIA released its monthly Drilling Productivity Monitor containing for the first time projected decreases in daily production in the Williston Basin and Eagle Ford shale for the month of March. The Permian Basin is still estimated to increase daily output, although it is predicted that as rig count continues to drop, the Permian Basin will also begin to decrease in monthly production with 2-4 months. With many companies now running a “drill but don’t complete” strategy the connection between rig count (drilling activity) and production is likely to become somewhat decoupled with the production impact being greater than that indicated solely by the fall in rig count. If the EIA’s March projections turn out to be correct, this month may mark the anticipated inflection point for decreases in U.S. shale output, possibly easing the inventory build seen over the past several months.
That having been said, while near-term production may flatten or decline in the U.S., in other locations it is still going to take some time before the oil price fall has a material impact. Canada added a further 100,000 barrels per day this week from two heavy oil projects, and developments already in progress are scheduled to add more than 1.5 million barrels per day by late this decade. Similar momentum can be seen in the Brazil pre-salt projects, and other major developments projects around the world.
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