US onshore rig market confirming the strain of falling oil price - modest decline in offshore rigsNews // January 14, 2015
Gaffney, Cline & Associates (GCA) has instituted a new weekly commentary and tracking service looking at US onshore and Gulf of Mexico rig activity.
Based on the Baker Hughes rig count it will highlight the reported week on week changes, and compare these to the evolving fall seen in 2009 during the financial crisis.
Figures released on 9 January 2015 confirmed a fall of 60 in the onshore rig count, the largest weekly drop since early 2009. The count has now declined by 180 from a year high of 1,876 in November 2014 to 1,696.
The commentary follows two articles published by the company in the final quarter of 2014: the first reviewing the economics of the US shale oil development at a time when prices were testing US$80 per barrel (http://gaffney-cline-focus.com/oil-price-and-the-us-unconventional-boom), the second on the economics of both unconventional activity and GoM activity as oil prices approached US$60 per barrel (http://gaffney-cline-focus.com/pain-likely-in-2015-but-deep-water-gom-should-be-better-placed-than-uncon).
The latter article noted US unconventional activity was likely to be the harder hit sector if prices continued to weaken into 2015.
GCA executive director and senior strategic advisor Bob George said: "The drop is significant and although it is not unusual to see drops at this time of year it is now chasing down the 50 per cent drop in oil price that has taken place since mid 2014.
“If it follows the trend seen in 2008-2009 following the financial crisis, the drop is likely to be very sharp indeed.”
In contrast with the onshore rig count, GCA noted the offshore Gulf of Mexico rig count is only showing a modest drop. Total rigs drilling have dropped from a high of 63 in August 2014 to 53 now.
However, rigs focused on oil drilling having dropped by only 2 to 42, and have actually showed a small increase since the start of the year.
Senior geoscientist and analyst Neil Abdalla said: "Price hedging for many companies has allowed them to continue selling their produced oil at prices far above current WTI trading ranges, often in the US$80-90 per barrel range.
"However these price hedges will run out heading into the second quarter of 2015, putting further pressure on activity.
“With oil prices having plummeted further in the opening days of the New Year and now dipped below US$50 per barrel on both sides of the Atlantic, we are instituting a weekly watch on both US onshore and Gulf of Mexico rig activity levels to assess how activity evolves.”
GCA’s weekly monitoring report will be issued by email and can be found at http://gaffney-cline-focus.com/category/u.s.-oil-gas-monitor. The firm will also distribute the update via twitter @GCA_Monitor.