The boom in US oil production will live to see another week.
The nation’s crude explorers, engaged in a pricing war with the world’s largest suppliers, defied predictions of a drilling slowdown and ran the most rigs since mid-November, boosting the US count by three to 1,575, Baker Hughes Inc. (BHI) said.
Rigs targeting natural gas were unchanged at 344, the Houston-based field services company’s website showed.
The number of US oil rigs has fallen from the 2014 peak of 1,609 amid a global surplus of crude that has dragged prices down by more than $45 a barrel and threatens to slow the nation’s unprecedented shale boom.
OPEC decided last week to maintain production, placing more strain on US oil producers that have some of the world’s highest drilling costs.
“There’s just so much momentum built up in the system right now and a lot of projects have already been funded,” Kurt Hallead, co-head of RBC Capital Markets’ global energy research team, said from Austin, Texas. “There are some projects that will continue on into the next quarter. Right now, you’re seeing the smoke, and you won’t really see the fire until about the second quarter.”
Future output in the US is at risk with oil trading below $80 a barrel, Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc. (GS), said in an interview.
“Below $60 creates a lot of pain for both” the U.S. and OPEC, he said.
The Organization of Petroleum Exporting Countries, responsible for about 40% of the world’s oil supply, decided November 27 to maintain its collective crude output target at 30 million barrels a day, resisting calls for cuts to shrink the excess in global markets.
The international benchmark North Sea Brent oil and the US counterpart West Texas Intermediate crude both slid below $70 a barrel after OPEC’s decision.
Brent for January delivery fell 57 cents yesterday to $69.07 on the London-based ICE Futures Europe exchange. WTI dropped 97 cents to $65.84 on the New York Mercantile Exchange. Both settlements were the lowest in more than five years.
The nation’s 52 largest US exploration and production companies are running about 92 horizontally drilling rigs in North Dakota’s Bakken formation, Hallead said.
At $60 oil, that count would shrink by almost half next year, he said. Texas’s Eagle Ford formation would lose about 30, and the Permian Basin of Texas and New Mexico, the biggest US oil field, would drop by eight.
“You will see a pretty sharp reduction in overall spending by next year, probably in the order of magnitude of 20 to 30%” Hallead said. “It’s going to really accelerate as you get into the second and third quarters of 2015.”
While the US rig count has dropped, domestic production continues to surge, with the yield from new wells in shale formations including Bakken and Eagle Ford projected to reach records this month, Energy Information Administration data show.
In the three formations that account for 88% of US shale oil output — the Bakken, the Eagle Ford and the Permian Basin — explorers can drill wells profitably in some areas with crude at $25 a barrel, a team of analysts led by Manuj Nikhanj at ITG Investment Research Inc. said this week.
Domestic oil output climbed 6,000 barrels a day in the week ended Nov. 28 to 9.08 million, the highest level in EIA data going back to 1983.
Harold Hamm, chairman and chief executive officer of U.S. driller Continental Resources Inc. (CLR), said by telephone December 1 that the drop in prices is bound to slow drilling. “Nobody’s going to go out there and drill areas, exploration areas and other areas, at a loss,” he said.
James Volker, Hamm’s counterpart at Whiting Petroleum Corp. (WLL), said at an oil conference in San Francisco September 22 that the contracts for about one-third of its rigs expire annually “so that we can go from the rigs we have to date to zero in three to six months.”
Drillers in US shale plays including the Bakken will probably “take their foot off the gas and cut some rigs going into 2015,” Fred Lawrence, a vice president for the Independent Petroleum Association of America, said by telephone November 28.
US gas stockpiles dropped 22 billion cubic feet last week to 3.41 trillion, according to the EIA. Supplies were 9.8% below the five-year average and 6.2% under year-earlier inventories.
Natural gas for January delivery gained 15.3 cents yesterday to $3.802 per million British thermal units on the Nymex, down 8% in the past year.
Recommended for you
