Shale Drillers Return as Oil Teeters at $50

A handful of optimistic U.S. shale drillers are sticking with plans to deploy more rigs in the coming months even as oil prices take a sharp dive well below many producers' $60-a-barrel breakeven point.

On Wednesday, Pioneer Natural Resources Co (PXD). became the first big company to publicly confirm it was drilling more wells, saying it had already added two rigs in the Permian Basin of Texas this month and would keep on adding two a month as long as the oil price "remains constructive."

Smaller shale oil producer WPX Energy Inc, whose operations are focused on North Dakota's Bakken shale, said this week that its decision to add two rigs later this year was unaffected by a nearly $8 drop in crude prices since June to toward $50 a barrel.

While half a dozen or so other companies in the U.S. shale industry have indicated they may add rigs, none have publicly confirmed a move, although a few have quietly done so.

Last week the U.S. oil drilling rig count rose for the first time since December, inching up by 12 to 640 across the country.

The industry is now in a difficult bind. While executives were quick to slash rigs to a five-year low as oil prices halved through the first quarter, many were beginning to grow hopeful that a new equilibrium was settling in the market, as U.S. crude traded steady in May and June at around $60 a barrel.

"Based on recent discussions with operators, companies were planning on increasing activity at $60 to $65 a barrel," analysts at Houston-based energy investment bank Simmons & Co said in a note on Tuesday.

That's just shy of the level Whiting Petroleum Corp and others have said would mark an impetus for returning some rigs to the field. Others like Hess Corp say they won't add any rigs at all this year.

This month's slump has injected renewed uncertainty into the outlook, with Wall Street analysts wide apart on the outlook.

Goldman Sachs this week reiterated its bearish view, calling for prices to fall to $45 a barrel by October. Morgan Stanley (MS), however, said the latest decline looked overdone, and that it expected a "modest price recovery" followed by a return to range-bound trading for the rest of the year.

More rigs are planned for early next year. Pioneer said it plans to add eight horizontal rigs in Texas shale basins, bringing the total rig count to 36, or the same number it had before the price of oil collapsed by more than half.

In North Dakota, the No. 2 U.S. producing state, one industry official said he was "a little shocked" when he saw prices drop and hoped for a rebound soon before budgets for 2016 are planned, which typically happens in the late fall.

"I hope to head into the fall with price levels that encourage activity in 2016 budgets," said Ron Ness, president of the North Dakota Petroleum Council, an industry trade group. "I hope (the price) recovers quickly."

Reporting by Anna Driver and Ernest Scheyder