Rig Index Continues Sharp Drop Despite A Rising Oil Price

Rig Index Continues Sharp Drop Despite A Rising Oil Price

6th February 2015

Rig Count and Oil Price

GCA’s U.S. Oil & Gas Monitor shows the U.S. rig activity again declining sharply to track very closely the 2008-2009 decline trend.  Baker Hughes announced a weekly fall of 88 rigs in the U.S. onshore, with this now having declined by 470 to 1,406 from a year high of 1,876 in November 2014.

In contrast, the Gulf of Mexico rig count actually increased by 1, an oil rig, over the prior week.

Oil price has had a roller-coaster week, with the Brent and WTI oil prices gaining around US$10 per barrel since just before the price shot up on 30th January, with intra-day swings of as much as US$5 a barrel.  For the first time it closed above the price at the start of the year.  While volatility of this kind makes it exceedingly difficult to make any call on the future, sentiment currently appears to be more up than down.  This volatility may be related to the market reacting to announced capital expenditure cuts by operators, continued rig count falls, and bold statements such as that by OPEC Secretary-General Abdulla al-Badri on “hitting bottom” and the possibility of a US$ 200 per barrel oil price at some point in the future.

Indices

In order to provide a relative comparison, the GCA Indices for rig count and oil price compare today’s data with the average in the three month period April to June 2014.  Changes this past week place the GCA Index for U.S. onshore rigs at 78, 26 points down on the 2014 high and 5 points down on the previous week, moving even closer to the trend established in 2008-2009.  Conversely, the Brent Oil Index closed up 5, having shown a similar gain the previous week.

It will be interesting to see if the jump in oil price in the past two weeks has any significant effect on rig count in the immediate term, as response times are typically delayed.  Most likely operators which have already set in motion large changes in their development plans to adapt to their core acreage positions, hedge positions, and 2015 capex budgets won’t quickly reverse these plans.  In present conditions what goes up US$ 5 to US$10 in a week can just as easily move in the opposite the next week.  However, companies hungry for cash flow may continue to complete inventory wells (wells drilled but waiting on completion) which will continue to add new production to the US market.

Looking more specifically at the major onshore basins where unconventional (tight and shale) oil are being developed (Permian, Eagle Ford and Williston Basin), which together represent 60% of the US oil-targeted activity, the drop continues to exceed the overall onshore rig count change, being between to 27 and 35 points off 2014 highs, compared to 26 overall. 

The rig count in these basins is down 58 in the week, with the GCA Indices now ranging from 72 (Eagle Ford) to 77 (Permian), with the latter suffering the largest decline this week with a significant 37 rigs being cut.  The GCA Index for all three basins combined is 75, a drop of 6 points in the week.

The implications of these movements for oil production in 2015 and 2016 are the subject of a further analysis from GCA, to be released on Monday, 9th February.

Authors

Rig Index Continues Sharp Drop Despite A Rising Oil Price

Neil Abdalla

Senior Professional, Geoscientist - neil.abdalla@gaffney-cline.com
Rig Index Continues Sharp Drop Despite A Rising Oil Price

Cecilia Jing Cui

Consultant, Petroleum Economist - cecilia.cui@gaffney-cline.com

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