Highlights

Permian oil rigs fall by two to 484

Gas-directed rigs rise by two to 186

Analysts say US rig counts likely stay flat



Houston —
US oil rig count fell by two to 860 on Friday as the fall conference season kicked off this past week, providing a glimpse into how exploration-and-production companies will allocate higher second-half 2018 capital budgets and navigate a pricier and tighter services, equipment and midstream landscape.

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Essentially the decrease came from a two-rig drop in the Permian Basin to 484, according to Baker Hughes data, as operators in the US’ most active play, which produces about 3.4 million b/d, continued slowing activity amid takeaway capacity that has nearly reached its limit.

But US gas rigs rose by two to 186, Baker Hughes said, as the “Others” category rose by three to 46 and the Haynesville Shale in Northwest Louisiana and East Texas fell by a gas rig.

The Permian basin saw its peak of 562 oil rigs in late 2014 as plummeting oil prices sparked a nearly three-year industry downturn, resulting in a low of 132 Permian oil rigs in late April 2016. But for the last 15 weeks or so, the basin’s oil rig count has hovered in the mid-470s to mid-480s.

“The [Permian] rig count probably won’t decline much at all,” veteran Credit Suisse analyst Jim Wicklund said in a Wednesday investor note, suggesting that operators want to hold onto premium rigs they have procured at lower day rates in preparation for more drilling late next year and into 2020.


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Midstream takeaway capacity in the Permian now roughly matches production, and a tranche of about 2 million b/d of new basin capacity won’t be available until H2 2019.

Consequently, “if you have a ‘super-spec’ rig now and you turn it back, your chances of getting one in three quarters are reduced,” Wicklund said, noting there are about 600 super-spec, or state-of-the-art, rigs in a US market of over 1,000 rigs.

2019 E&P SPENDING LIKELY TO BE WEIGHTED TO H2: ANALYST

“E&P spending will be back-end weighted in 2019, but that just creates another leg of upward momentum off an already strong base of current business with more visibility than the industry has seen in years,” said Wicklund.

But even as Permian takeaway capacity decreased starting around March/April, upstream producers increased capital spending.

Investment bank Barclays updated its twice-yearly upstream capital spending survey last week and found US onshore E&P spending plans for the top 40 upstream operators poised to jump 15% this year on average from 2017.

Operators raised capital budgets mid-year, in contrast to April when the investment bank found annual budgets were up just 9% from 2017.

Barclays also said 38% of its 100 respondents polled last month plan to boost rig counts over the next 12 months even though oilfield service costs are expected to rise, including land rig day rates. Another 58% will keep rig counts flat while 5% will decrease capex over that time frame.

This week, Barclays’ annual CEO Energy-Power Conference kicked off the fall conference season. The event clarified that many upstream operators were slowing Permian activity with some building drilled, but uncompleted, wells; others tinkered with or focused on good results from other basins as they wait for more Permian takeaway. And most have sufficient Permian takeaway capacity already lined up to prevent exposure to lower WTI Midland prices.

On Wednesday, Jeff Miller, CEO of big oil services provider Halliburton, said in webcast conference remarks that the downturn in US onshore activity due to budget constraints and takeaway issues has been greater than expected.

‘MORE WHITE SPACE’ IN HALLIBURTON’S CALENDAR: CEO

Even amid improving industry conditions, there has been “a decrease in customer urgency that [has resulted] in more white space in our calendar … than expected,” Miller said.

At the same time, “we are still in the early innings of a strong North American cycle,” Miller said, adding 2018 has also been a “strong” year for North American land services.

Ahead of the Barclays conference, Evercore ISI held a global energy conference call that noted the US land rig count, which on Friday was 1,029 (down one from last week) is around 25% above the 2017 average rig count.

“We expect the 2018 [US] rig count to average around current levels and increase 5%-10% in 2019,” Evercore analyst James West said on the call.

Evercore, which also issues its own twice-yearly global capital spending outlook in December and again around mid-year, believes 2019 capex is poised to increase further from this year’s levels.

“Fifty-nine percent of our capex survey respondents said their 2019 capex will be higher than 2018,” West said. Also, “41% said a flat budget is expected, and no one expects to spend less in 2019″ than this year.

— Starr Spencer, starr.spencer@spglobal.com

— Edited by Valarie Jackson, newsdesk@spglobal.com

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