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After a chaotic week in the energy complex, today’s data from Baker Hughes suggests American oil companies are finally starting to draw the line as rig counts collapse to their lowest since July 2016, having collapsed at the fastest rate since 2014’s crash…

The lagged response on production may be imminent…

And pressure is building on the Trump administration to “do something” – even if doing something is the worst thing for a market that needs the pressure of low prices to force restructurings. As Bloomberg reports, a plan being weighed by Treasury Secretary Steven Mnuchin to steer financial aid to beleaguered oil drillers could set up a clash with Democrats who have warned against any bailout for the industry.

As OilPrice.com’s Irina Slav notes, the Department of Treasury may set up a lending fund for oil companies, Secretary Steven Mnuchin told Bloomberg this week, adding that there was nothing final yet.

“One of the components we’re looking at is providing a lending facility for the industry,” Mnuchin said.
“We’re looking at a lot of different options, and we have not made any conclusions.”

Besides direct loans – which the Federal Reserve would implement – the federal government may also buy stakes in some oil companies in addition to providing loans. It could also ask these companies to reduce production.

The larger oil companies that hold an investment-grade rating would either have to fend for themselves on the debt market or take advantage of the loan program that the Fed has set up for small businesses, even if they are not exactly small businesses. The actual small businesses, in the meantime, are asking the Fed to adjust the rules of the loan program to allow them to use the funds to pay off existing debt.

…click on the above link to read the rest of the article…

Capital Flight Is Killing The US Shale Boom

October 8, 2019

Capital Flight Is Killing The US Shale Boom

The growth in U.S. shale production is grinding to a halt as low prices put drillers in a financial vice.

The slowdown has been unfolding for much of 2019, but the latest slide in oil prices is another blow to cash-strapped companies. Share prices for many E&Ps are down sharply. For instance, Devon Energy’s stock is down 20 percent since mid-September; EOG Resources is off by 17 percent and Pioneer Natural Resources is down by more than 13 percent. Many other companies have seen similar declines.

Rig counts have fallen by 20 percent since last year, drilling is down, hotel rates are down, and employment is in decline. “If you can’t wring out any costs savings then you’ve got to buy less stuff if you want to get your costs down, and that’s the phase we’re entering into,” Jesse Thompson, senior business economist at the Houston branch of the Federal Reserve Bank of Dallas, told Bloomberg.

As Bloomberg noted, annualized employment grew only 0.7 percent through August, compared to 11.4 percent for the same period in 2018. The unemployment rate has ticked up from 2 to 2.3 percent. The number of fracking crews has fallen to its lowest level in 30 months.

For embattled shale drillers, there is another imminent hurdle that they must clear. For the first time since 2016, Permian shale drillers could see their access to borrowing slashed. Lenders periodically reassess the borrowing base that they offer to oil and gas producers, a so-called “credit redetermination” period.

According to a survey of financial institutions as well as oil and gas firms by law firm Haynes and Boone, the industry is set to see “a decrease in credit availability for producers and a strong interest in alternative sources of capital.”

In other words, lenders are turning off the spigots.

…click on the above link to read the rest of the article…

Rig Count Drops As U.S. Crude Output Hit 11 Million Bpd

July 21, 2018

Rig Count Drops As U.S. Crude Output Hit 11 Million Bpd

Baker Hughes reported a decreased number of active oil and gas rigs in the United States on Friday. Oil and gas rigs decreased by 8 rigs, according to the report, with the number of active oil rigs falling by 5 to 858 this week, while the number of gas rigs dipped by 2, hitting 187.

The oil and gas rig count now stands at 1,046—up 96 from this time last year, with the number of oil rigs accounting for 94 of that 96.

Canada gained 14 oil and gas rigs for the week, 11 of which were gas rigs. Canada’s oil and gas rig count is now up just 5 year over year. Oil rigs are up by 24 year over year in Canada, while the number of gas rigs are down by 19.

The biggest loser by basin this week was Granite Wash, which lost 3 rigs. The only basin to gain rigs this week were Cana Woodford (+2), and Utica (+1). The Permian basin, which saw neither an increase or a decrease this week, and Cana Woodford, saw the biggest increases year over year. Cana Woodford now has 12 more rigs than this time last year, while the Permian has 102 rigs more than this time last year.

WTI crude was trading down on Friday afternoon while Brent crude was trading up—widening the WTI discount to Brent. WTI was trading down 0.18% (-$0.12) at $68.12 at 12:34 pm EDT. Brent crude was trading up 0.25% (+$0.18) at $72.76 per barrel.

Both benchmarks are trading significantly down week on week as the market treads carefully after OPEC committed to increasing production in order to more closely stick to its production cut agreement after months of under producing, and despite US production that this week, for the first time, hit a new psychologically important high of 11 million bpd, after hovering at 10.9 million bpd for multiple weeks.

…click on the above link to read the rest of the article…

Rig Count Falls As U.S. Oil Output Flatlines

June 23, 2018

Rig Count Falls As U.S. Oil Output Flatlines

Baker Hughes reported another dip in the number of active oil and gas rigs in the United States today. Oil and gas rigs decreased by 7 rigs, according to the report, with the number of oil rigs decreasing by 1, and the number of gas rigs decreasing by 6.

The oil and gas rig count now stands at 1,052—up 111 from this time last year.

Canada, for its part, gained 21 oil rigs for the week—after last week’s gain of 27 oil and gas rigs. Despite weeks of significant gains, Canada’s oil and gas rig count is still down by 10 year over year.

Oil benchmarks surged on Friday afternoon as the market processed OPEC’s agreement to stick more closely to the production cuts by holding the feet to the fire of those members who had underproduced its quota under the OPEC deal that went into effect in January 2017. The OPEC meeting on Friday resulted in OPEC agreeing to increase production to get back to agreed upon levels, which is about 1 million bpd more than the cartel produced in May, when compliance to the quota was about 150%. Missing from the events of the day was OPEC’s agreement to undo the production cut deal, or to gradually increase production beyond the contractual amount of 32.4 million bpd. The absence of any real change to the production quota proceeded a significant price spike of 4%, as relief set in that OPEC deal would either fall apart or come to an early end.

At 11:44am EDT, the WTI benchmark was trading up 3.83% (+$2.51) to $68.05, with Brent up 2.31% (+$1.68) to $74.48. Both benchmarks are up week over week as well as on the day.

US oil production continues putting downward pressure on oil prices, and for the second week in a row, US production reached 10.900 million bpd—close to the 11 million bpd production that many had forecast for the year. This week is the first week in over a quarter that wasn’t an increase.

At 6 minutes after the hour, WTI was trading up 4.81% at $68.69, with Brent trading up 2.18%at $74.39.

U.S. Rig Count Inches Higher As Canadian Rig Count Slips

March 3, 2018

U.S. Rig Count Inches Higher As Canadian Rig Count Slips

Baker Hughes reported another 3-rig increase to the number of oil and gas rigs this week.

The total number of oil and gas rigs now stands at 981, which is an addition of 225 rigs year over year.

The number of oil rigs in the United States increased by a single rig this week, and now stands at 800, or 191 over this time last year. The number of gas rigs, which rose by 2 this week, now stands at 181, or 35 rigs above this week last year.

Canada lost another 4 rigs this week after losing 12 last week. The losses were 6 for gas, while oil gained 2.

At 11:45 am EST, the price of a WTI barrel was trading down $0.22 (-0.36%) to $60.77—dollars below last week’s price. The Brent barrel was also trading down on the day, by $0.02 (-0.03%) to $63.81. That represents a $3 fall for the benchmark in a week. The market bristled in early trading after President Donald Trump on Thursday announced his plan for imposing tariffs on steel and aluminum. Many in the oil industry spoke out against the plan, on the grounds that the tariffs would kill jobs in the energy industry as costs for infrastructure projects would likely skyrocket.

US crude oil production rose in the week ending February 23 to 10.283 million bpd—resuming its steadfast climb of recent weeks after a tiny hiccup last week when it fell from a high of 10.271 million bpd to 10.270 million bpd. This week is the highest production figure for the U.S. ever.

By basin, the Marcellus gained two rigs. The Williston basin lost 2. Cana Woodford, DJ-Niobrara, and the Permian all lost a single rig.

At 1:11pm EST, oil had rallied somewhat, with WTI trading at $61.14 (+$0.15) and Brent tradingat $64.17 (+$0.34).

Oil Prices Tank As U.S. Drillers Add Massive Number Of Rigs

February 10, 2018

Oil Prices Tank As U.S. Drillers Add Massive Number Of Rigs

As if the recent nosedive that oil prices have taken in the last few days wasn’t bad enough—Baker Hughes reported a staggering increase to the number of rigs. The number of active oil and gas rigs increased by 29 to Baker Hughes data. This brings the total number of oil and gas rigs to 975, which is an addition of 234 rigs year over year.

The number of oil rigs in the United States rose this week by 26 with the number of gas rigs increasing by 3. The number of oil rigs now stands at 791 versus 591 a year ago. The number of gas rigs in the US now stands at 184, up from 149 a year ago.

At 11:24 am EST, the price of a WTI barrel was trading down $1.35 (-2.21 percent) to $59.80—almost a staggering $5.00 under this same time last week. The Brent barrel trading down $1.39(-2.14 percent) to $63.42, also almost $5 per barrel under last week, and a loss of 9 percent since the highs in late January.

Pressing on prices are robust US production. US crude oil production rose again, to 10.251 million bpd, from 9.919 million bpd the week before, setting another new high and surpassing the psychological threshold of 10.0 million bpd.

Last week, the EIA pressured prices even further when it changed its US production forecast, with their prediction that the US would reach 11 million bpd by the end of 2018—a full year earlier than its previous estimates that it had made just last month.

The Permian basin rig count saw the greatest increase to the number of rigs at 10.

At 1:09pm EST, WTI was trading at $59.03 (-$2.12) with Brent trading at $62.68 (-$2.13).

US Rig Count Soars Most In 10 Months As Production Hits Record High

January 26, 2018

US Rig Count Soars Most In 10 Months As Production Hits Record High

US rig counts rose by 12 in the last week – the biggest rise since March 2017 – as the lagged crude price is sparking more drilling and in turn sending production surging to a new record high… just shy of Saudi Arabia!

US crude production surged back from its weather-impacted plunge to a new record high last week…

And is set to overtake Saudi Arabia very soon…

Rig Count Drops Most In 7 Months As ‘Traders’ Panic-Buy Crude Futures

August 18, 2017

Rig Count Drops Most In 7 Months As ‘Traders’ Panic-Buy Crude Futures

The US oil rig count dropped 5 to 763 last week, the biggest drop in 7 months. However, crude production from the Lower 48 has surged (rising the most since June last week) to the highest since July 2015. Even with today’s sheer farce panic-buying squeze higher in WTI crude, oil looks set for its 3rd weekly close lower as BNP notes the “whole supply surplus story is not likely to go away anytime soon.”

*U.S. OIL RIG COUNT DOWN 5 TO 763 , BAKER HUGHES SAYS :BHGE US
*U.S. GAS RIG COUNT UP 1 TO 182 , BAKER HUGHES SAYS :BHGE US

As we have noted previously, this inflection point in the rig count fits with the rolover in crude prices…

While the rig count growth has stabilized, crude production continues to rise in the Lower 48 (though had dropped in Alaska for 3 straight weeks) but both saw a rise this week (total production up 79k) as Lower 48 production hit its highest since July 2015…

Bloomberg notes that U.S. oil production from major shale plays is set to hit another record at 6.15 million barrels a day next month, according to the EIA. It’s not just the Permian that’s growing, as the agency sees higher output across the board.

WTI Crude remains lower on the week despite the panic-buying… with no catalyst at all except bannon momentum ignition in USDJPY.

Soime chatter on the crude curve – “Flat price is finally catching up with some of the signs we’ve seen that the physical market is tightening,” Clayton Rogers, an energy derivative broker at SCS Commodities, says.

Production, Rig Count Surge As Exxon Bets Big On U.S. Shale

March 3, 2017

Production, Rig Count Surge As Exxon Bets Big On U.S. Shale

US oil rig counts rose for the7th straight week (up 7 to 609) to the highest level since October 2015.

With production surging back above 9mm b/d – the highest in a year – the trend in the rig count implies considerably more production to come…

And it’s all in the Permian…

And with rig counts rising (in the Permian), production shows no signs of slowing, as OilPrice.com’s Nick Cunningham notes, ExxonMobil’s new CEO Darren Woods announced a dramatic shift towards shale drilling this week, a new strategy that will prioritize drilling thousands of smaller wells while reducing spending on the massive projects that the oil major has long been accustomed to pursuing.

Mr. Woods gave a presentation to investors on March 1, selling his vision after recently taking over from Rex Tillerson, who left to become U.S. Secretary of State. Exxon will now ramp up spending on shale drilling, after watching dozens of smaller companies profit from the surge in production in Texas, North Dakota and elsewhere over the past decade.

Exxon will dedicate a quarter of its 2017 spending budget on shale, putting $5.5 billion into the effort. “More than one quarter of the planned spending this year will be made in high-value, short-cycle opportunities, including in the Permian and Bakken basins,” Exxon wrote in a March 1 statement. The oil major says that it has 5,500 wells in its queue for drilling in the Permian and the Bakken shales, each with a return of 10 percent or more at $40 per barrel.

Exxon was able to build up this inventory of shale wells with the $6.6 billion it spent in January to double its Permian acreage.

The shift towards shale should pay off over time, with a portfolio of thousands of tiny shale wells making up a growing share of the oil major’s production portfolio.

…click on the above link to read the rest of the article…

The Oil War Is Only Just Getting Started

February 1, 2017

The Oil War Is Only Just Getting Started

It’s been a month now that investors and analysts have been closely watching two main drivers for oil prices: how OPEC is doing with the supply-cut deal, and how U.S. shale is responding to fifty-plus-dollar oil with rebounding drilling activity. Those two main factors are largely neutralizing each other, and are putting a floor and a cap to a price range of between $50 and $60.

The U.S. rig count has been rising, while OPEC seems unfazed by the resurgence in North American shale activity and is trying to convince the market (and itself) and prove that it would be mostly adhering to the promise to curtail supply in an effort to boost prices and bring markets back to balance. In the next couple of months, official production figures will point to who’s winning this round of the oil wars.

This would be the short-term game between low-cost producers and higher-cost producers.

In the longer run, the latest energy outlook by supermajor BP points to another looming battle for market share, where low-cost producers may try to boost market shares before oil demand peaks.

BP’s Energy Outlook 2017 estimates that there is an abundance of oil resources, and “known resources today dwarf the world’s likely consumption of oil out to 2050 and beyond”.

“In a world where there’s an abundance of potential oil reserves and supply, what we may see is low-cost producers producing ever-increasing amounts of that oil and higher-cost producers getting gradually crowded out,” Spencer Dale, BP group chief economist said.

In BP’s definition of low-cost producers, the majority of the lowest-cost resources sit in large, conventional onshore oilfields, particularly in the Middle East and Russia.

…click on the above link to read the rest of the article…

As Rig Count Plunges, Has U.S. Oil Reached Its Capitulation Point?

January 12, 2016

As Rig Count Plunges, Has U.S. Oil Reached Its Capitulation Point?

The big drop in rig count for the week that ended last Friday points to capitulation by U.S. shale drillers.

The total land rig count fell by 37 rigs and the horizontal rig count fell by 30 rigs (Figure 1).

Figure 1. U.S. shale play horizontal rig count. Source: Baker Hughes & Labyrinth Consulting Services, Inc.

(Click image to enlarge)

That’s the biggest drop since March 2015 and it suggests that drillers are out of cash. Until now, companies have been rationing dwindling funds from secondary share and bond offerings as well as equity capital.

Related: Rig Count: Capitulation?

But those sources largely dried up after October when WTI futures prices began their fall from nearly $50 per barrel to their present value of $32.50 per barrel. Investors have finally stopped believing the claims by Daniel Yergin and Andy Hall that prices would rebound, and started paying attention to the reality that I have been pointing out since May 2015.

If companies must finally pay for new wells out of cash flow, we might expect drilling to plummet in 2016 because tight oil companies have been spending other people’s money to pay for half their drilling as late as the third quarter of this year (Figure 2).

Figure 2. Third quarter 2015 tight oil-weighted exploration and production company negative cash flow. Source: Google Finance & Labyrinth Consulting Services, Inc.

(Click image to enlarge)

…click on the above link to read the rest of the article…

Rig Count: Capitulation?

January 10, 2016

Rig Count: Capitulation?

After last week’s moderate drop in rig count, the amount of horizontal oil rigs seems to implode this week.

The U.S. land rig count was down 37 this week and the land horizontal rig count was down 30.

Is this capitulation? Hard to say but it’s the biggest drop since March 2015. And, the Fayetteville Shale play officially bit the dust this week with zero rigs for the first time since the play began in 2005.

The tight oil horizontal rig count was down by 20 and the key Bakken-Eagle Ford-Permian HRZ rig count was down by 14. The Bakken lost 3 rigs, the Eagle Ford, 4, and the Permian, 7.

Shale gas lost 8 HRZ rigs. The Haynesville lost 2, the Marcellus, 6, the Utica 1, the Fayetteville, 1. The Woodford and Barnett each gained 1 rig.

(Click to enlarge)

Has The E&P Industry Lost Touch With Reality?

July 28, 2015

Has The E&P Industry Lost Touch With Reality?

The U.S. rig count increased by 19 this week as oil prices dropped below $48 per barrel–the latest sign that the E&P industry is out of touch with reality.

Getty Images from The New York Times (July 26, 2015)

The last time the rig count increased this much was the week ending August 8, 2014 when WTI was $98 and Brent was $103 per barrel.

What are they thinking?

In fairness, the contracts to add more rigs were probably signed in May and June when WTI prices were around $60 per barrel (Figure 1) and some felt that a bottom had been found, left behind in January through March, and that prices would continue to increase.

Figure 1. Daily WTI crude oil prices, January 2-July 24, 2015. Source: EIA and NYMEX futures prices (July 21-24).

(click image to enlarge)

Even then, however, the fundamentals of supply, demand and inventories pointed toward lower prices–and still, companies decided to add rigs.

In mid-May, I wrote in a post called “Oil Prices Will Fall: A Lesson in Gravity”,
“The data so far says that the problem that moved prices to almost $40 per barrel in January has only gotten worse. That means that recent gains may vanish and old lows might be replaced by lower lows.”

In mid-June, I wrote in a post called “For Oil Price, Bad Is The New Good”,
“Right now, oil prices are profoundly out of balance with fundamentals. Look for a correction.”

Oil prices began falling in early July and fell another 6% last week. Some of that was because of the Iran nuclear deal, the Greek debt crisis and the drop in Chinese stock markets. But everyone knew that the first two were coming, and there were plenty of warnings about the Chinese stock exchanges long before July.

…click on the above link to read the rest of the article…

Oil Price Recovery May Be Too Much Too Soon

May 8, 2015

Oil Price Recovery May Be Too Much Too Soon

Oil prices have hit their highest levels in 2015, with WTI surging above $60 per barrel. Crude oil inventories in the U.S. declined for the first time since December 2014, perhaps indicating that the glut could be easing.

The EIA reported that oil stockpiles fell by 3.9 million barrels for the week ending on May 1, a larger drop than expected. With rig counts falling by more than half since last year, this could be the beginning of a longer contraction. Both weekly production figures and the stock build appeared to have peaked, suggesting that supplies are adjusting lower and demand is rising.

That has oil prices surging from their March lows, with WTI jumping over $15 per barrel, and Brent about $20 per barrel.

But have the markets overreacted? The rise in oil prices over the last few weeks has been so rapid that few predicted it. Speculators have raised their bullish betsto the highest level in years. The optimism may not be justified. In the past, bets to such a degree have often been followed by a fallback in prices, the head of commodity strategy at Saxo Bank told Reuters in an interview. Similarly, the top commodities official at Commerzbank told CNBC that the price rise was “premature,” and oil prices could dip back below $50 per barrel once the markets come to their senses.

In other words, the markets may have overshot, rising beyond levels warranted by the underlying fundamentals. Oil inventories are still at 80 year highs. The 487 million barrels of oil sitting in storage will take quite a while to drawdown. Crucially, oil production is still exceeding demand, leaving oil markets well-supplied.

…click on the above link to read the rest of the article…

Rig Count Drops For 14th Week In A Row, Fastest Rate In 29 Years

March 13, 2015

Rig Count Drops For 14th Week In A Row, Fastest Rate In 29 Years

For the 14th week in a row, the US rig count fell 67 rigs to 1125, (a 5.6% drop to 41.4%, bigger than March 09’s previous record 14-week decline of 41%). The decline in rigs contionues to tyrack the lagged oil price perfectly but has shown absolutely no impact on production levels as firms push for cashflows in a race to the bottom. As one analyst rightly noted, while rig counts continue to drop, companies are high-grading (shifting to more efficient wells), “the real thing that needs to change is U.S. production and that is not happening at the moment.” April WTI Crude tested $45.01 before the data and bounced very modestly on the data.

*U.S. TOTAL RIG COUNT -67 TO 1,125, BAKER HUGHES SAYS
*U.S. OIL RIG COUNT -56 TO 866, BAKER HUGHES SAYS

The 14th weekly drop in a row continues to track the lagged oil price…

For an aggregate XX% plunge (the fastest plunge since 1986)

Rig counts drop but production rises…

* * *

Finally, as a reminder, here is Bloomberg to explain the ‘link’ between wells, production, and rigs…

…click on the above link to read the rest of the article…

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