Douglas Westwood: Has the Shale Oil Rig Count Finally Hit Bottom?
As an indicator of the turmoil that has hit the US oil & gas services sector the Baker Hughes rig count is hard to beat. From 1,931 rigs drilling in September 2014 the count has declined to a total of 408, dramatically reducing activity and jobs for drillers, service companies and suppliers alike.
Unconventional activity has been hit hard. Higher horsepower rigs, ever-longer laterals and costly stimulation services increased well costs by millions of dollars compared with conventional, vertical wellbores. Despite impressive cost savings across the US, non-core unconventional assets have been among the main casualties of the current energy crisis. Even core areas of the prolific Eagle Ford and Williston Basins saw market declines in active rigs.
Those declines may have finally hit bottom. The last four Baker Hughes rig count updates have horizontal rigs targeting oil at 248, 249, 249 and 257 units. Larger unconventional drillers have stated that $50/bbl WTI will be enough for them to add rigs to the fleet, albeit in modest numbers, a price now within reach. While vertical rigs continue to decline slightly, the US service sector has now reached, or very nearly reached, what appears to be the trough. This is good news for oilfield employment with data suggesting up to 200 workers are employed for each active rig, either directly or indirectly.
While the unconventional oilfield services and new equipment sectors appear to have finally hit the lowest point in the cycle, their path to profitability remains distant. The balance of 2016 is set to remain testing as the unconventional rig count grinds upward.
