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Oil Rig Count Plunges Most Ever, Oil Price Soars, Inventories Too: Catch Falling Knife, Get Fingers Sliced Off

January 30, 2015

Oil Rig Count Plunges Most Ever, Oil Price Soars, Inventories Too: Catch Falling Knife, Get Fingers Sliced Off

The oil industry is dead-serious when it talks about slashing operating cost and capital expenditures. They have to. Preserving cash is suddenly a priority, after years when money was growing on trees.

In the US, the cost cutting has reached frenetic levels. One place where it shows up on a weekly basis is the number of rigs actively drilling for oil. And that rig count dropped by 94 to 1,223 in the latest week, as Baker Hughes reported today. A phenomenal plunge, by far the worst ever. In January, the rig count crashed by 276, the most ever for a calendar month. That’s 18.4%! the rig count is now down 386 from its peak on October 10, by nearly a quarter!

And yet, it’s still just the beginning. The chart shows the breathless fracking-for-oil boom that started after the financial crisis. Not included are the rigs drilling for natural gas. That fracking boom had started years earlier and ended in a glut and total price destruction that continues to this day (chart). Note the two-month cliff-dive, the worst ever. During the financial crisis, the oil rig count fell 60% from peak to trough. If this oil bust plays out the same way, the rig count would drop to 642! The bloodletting in the industry would be enormous.

US-rig-count_1988_2015-01-30=oil

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

 

Chevron Slashes 23% Of PA Workforce As US Rig Count Collapses To June 2010 Lows

January 30, 2015

Chevron Slashes 23% Of PA Workforce As US Rig Count Collapses To June 2010 Lows

For the 8th week in a row (something that hasn’t happened since June 2009), US total rig count plunged. This week’s 90 rig drop to 1543 is the largest so far (with oil rigs down 94 to 1223 – lowest since Jan 2013).  The total rig count is now down 20% in the last 8 weeks to the lowest since June 2010 as it tracks the 4-month lagged oil price perfectly. This is the 2nd biggest 8-week drop in 22 years. This – rather unsurprisingly – has led Chevron to decide to cut 23% of its Pennsylvania workforce “due to activity levels.” Not ‘unambiguously positive’ as so many in the central planning bureaus would have everyone believe.

 

The Rig Count continues to plunge along with lagged oil prices…

 

Obviously for oil prices to eventutally stabilize, production will have to slow and rig counts plunge further.. and so will jobs…

  • *CHEVRON TO CUT 23% OF PENNSYLVANIA WORKFORCE AMID CRUDE SLUMP
  • *CHEVRON JOB CUTS STEM FROM LOWER-THAN-EXPECTED ACTIVITY LEVELS

 

Charts: Bloomberg

 

Worldwide Drilling Productivity Report

January 27, 2015

Worldwide Drilling Productivity Report

The EIA publishes what they call a Drilling Productivity Report in which they claim that each rig is getting more productive, that is each rig produces just a little more oil each month than it did the previous month. But over the long haul, I find that the exact opposite is true. In every place in the world, each rig produces a little less oil every year.

Baker Hughes publishes monthly their International Rig Count where we can find the world rig count back to 1975. However I only looked at the last 15 years and found some surprising results.

The last “Rig Count” data point on all charts below is December 2014. Also, very important, the rig count includes rigs drilling for gas as well as oil since Baker Hughes does not break down international rigs down to either gas or oil. They just give us the total rig count.

World Rig Count

The last price collapse we had, in late 2008, the rig count dropped by over 1,570 between September 2008 and May 2009.

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

 

Tight Oil Production Will Fade Quickly: The Truth About Rig Counts

January 27, 2015

Tight Oil Production Will Fade Quickly: The Truth About Rig Counts

U.S tight oil production from shale plays will fall more quickly than most assume.
Why?  High decline rates from shale reservoirs is given. The more interesting reasons are the compounding effects of pad drilling on rig count and poorer average well performance with time.
Rig productivity has increased but average well productivity has decreased. Every rig used in pad drilling has approximately three times the impact on the daily production rate as a rig did before pad drilling.  At the same time, average well productivity has decreased by about one-third.
This means that production rates will fall at a much higher rate today than during previous periods of falling rig counts.
Most shale wells today are drilled from pads.  One rig drills many wells from the same surface location, as shown in the diagram below.
(click image to enlarge)
The Eagle Ford Shale play in South Texas is one of the major contributors to increased U.S. oil production.  A few charts from the Eagle Ford play will demonstrate why I believe that U.S. production will fall sooner and more sharply than many analysts predict.

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

 

North Dakota Mineral Resources Dept Admits Half Its Shale Regions Below Breakeven

January 10, 2015

North Dakota Mineral Resources Dept Admits Half Its Shale Regions Below Breakeven

While talking heads and TV personalities reassure the investing public that low oil prices are “unambiguously awesome” for everyone, it seems the cracks in this narrative are starting to show. From falling wages, surging job cuts, plunging rig counts, and crashing capex, it’s becoming a lot harder to ‘pretend’ that everything’s fine. One wonders, when the companies themselves are slashing workweeks and cutting rig counts, when will ‘investors’ believe… perhaps now that Lynn Helms, Director of the North Dakota Department of Mineral Resources explains to the House Appropriations Committee that at least half of its shale regions are already below breakeven.

 

From a 12 page presentation…

 

The following shale regions are below breakevens (at which new drilling would cease)…

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

US Rig Count Crashes At Fastest Pace Since 2009 To 14-Month Lows

January 9, 2015

US Rig Count Crashes At Fastest Pace Since 2009 To 14-Month Lows

Just as T.Boone Pickens warned, US Rig Counts are plunging. Down by 61 this week alone – the biggest weekly drop in over 5 years – at 1,750, this is now the lowest since November 2013 (and very close the lowest since 2010). The 10% or so plunge in the last 7 weeks is following the same trajectory as the 2008 collapse – which led to – just as Pickens suggested – a 50% crash in rig counts…

 

 

Pickens… “demand is down” – “lower demand is the main driver” – “rig count is gonna fall – drop 500 rigs in next 6-9 months”

This the first rig count drop year-over-year in a year…

 

Charts: Bloomberg

 

Oil Prices, Rig Count And The Economic Impact

January 7, 2015

Oil Prices, Rig Count And The Economic Impact

A few years ago I spent a good deal of time overseas. When you travel for an extended period, it is always interesting to begin to understand the perception that people in other parts of the world have about where you come from. When I was living and working in Spain, it was a common misconception that since I was from Texas I must own cows and oil wells. (I was also asked several times if we really did ride horses to work and wear cowboy hats.  Okay, some people still do.)  The point is that perception and reality can be two entirely different things. The current perception is that falling oil prices will be a net positive to the economy. However, could reality actually be quite different?

Moving-To-Texas

Since 2010, the Texas economy has boomed due to the surge in oil prices which has led to substantial increases in employment, net worth and corporate profits. People from all over the country have moved to Texas in droves in search of higher wage-paying employment than what could be achieved in many other states. With a substantially lower cost of living, Texas has been a mecca in the desert of economic growth found in many states since the financial crisis.

http://www.zerohedge.com/news/2015-01-07/oil-prices-rig-count-and-economic-impact

 

Canada Heavy Oil Drops Below $35 As Rig Count Hits Record Low For January

January 6, 2015

Canada Heavy Oil Drops Below $35 As Rig Count Hits Record Low For January

Think Texas and Pennsylvania have a problem with plunging oil prices, don’t look North. West Canada Select (Heavy) crude oil prices have collapsed to below $35 per barrel (the lowest since Feb 2009). This is a 60% plunge in the last 6 months and has left the industry stunned.

 

While US rig counts have fallen for the last few weeks as the lagged response to falling prices finally catches up to reality, theCanadian oil rig count has never been lower for the first week of January.

 

Will the Canadian housing bubble be next?

Charts: Bloomberg

 

US Rig Count Continues To Plunge To 10-Month Lows

January 5, 2015

US Rig Count Continues To Plunge To 10-Month Lows

Just as T.Boone Pickens warned, watching the US Rig Count is key to comprehending the looming crisis in oil. The last 4 weeks alone have seen a drop of over 100 rigs – the 2nd fastest slide since 2001 in percentage terms. This is the worst December to January since 2008/9. As Pickens noted, “demand is down” – “lower demand is the main driver” – “rig count is gonna fall – drop 500 rigs in next 6-9 months”

Note that prices diverged lower as rig counts kept going before rolling over and then crashing…

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

 

WTI Hits $52 Handle As US Rig Count Tumbles To 8-Month Lows | Zero Hedge

December 29, 2014

WTI Hits $52 Handle As US Rig Count Tumbles To 8-Month Lows | Zero Hedge.

Just as T. Boone Pickens warned “watch the rig counts” last week, so the Baker Hughes rig countjust collapsed for the 3rd week in a row to 8-month lows. This is the fastest 3-week drop since mid-2009. Crude prices were already weak but the news has flushed WTI to a $52 handle (not seen in the front-month contract since May 2009)

Rig count is tumbling…

Some context for the surge in US rig count…

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

Drilling Cutbacks Mean Service Companies Forced to Scrap Rigs

December 26, 2014

Drilling Cutbacks Mean Service Companies Forced to Scrap Rigs.

Despite the decline in oil prices, the U.S. is expected to boost production by 300,000 barrels per day in 2015, up to a yearly average of about 9.3 million barrels per day, according to the most recent government estimates.

But the number of oil and gas rigs in operation is already beginning to drop. For the week ending in December 19, the rig count dropped to 1,875 active rigs, down from 1,893 a week earlier. The fall off is an indication that exploration companies are beginning to pare back investments. Pulling back on drilling may result in a lower future production, which could hurt the growth prospects of some oil firms.

However, the slowdown in drilling activity is having a much more immediate and acute effect on a separate set of companies – those supplying the rigs.

Offshore oil contractors such as Halliburton or Transocean have seen their share prices tank worse than exploration companies because their revenue comes from being paid to drill, not necessarily from oil production after wells are completed. That means that when drilling slumps, their profits take an immediate hit. Even worse, exploration companies may see rising profits from existing production as oil prices rebound, but drilling service companies don’t benefit if their drilling contracts had been put on hold or cancelled.

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

T. Boone Pickens Rages On CNBC: “I Am The Expert, Not You”, Says Oil Down Due To “Weak Demand” | Zero Hedge

December 23, 2014

T. Boone Pickens Rages On CNBC: “I Am The Expert, Not You”, Says Oil Down Due To “Weak Demand” | Zero Hedge.

Narrative, we have a problem! No lesser oil-man than T. Boone Pickens made quite an appearance on CNBC this morning – stunning the cheerleaders into first defense then silence as he broke the facts on oil’s collapse to them. Oil is down “mainly due to weak demand,” he explains… the anchors deny, “I am the expert, not you” Pickens rages as he warns drilling rigs will be laid down on a very wide scale (just as we have noted previously). Arguing over ‘peak oil’, he calls CNBC chatter “bullshit” and laid out a rather dismal short- to medium-term outlook for the oil & gas sector – not what the cheerleading tax-cut slurping media narrative wants to hear at all…

“demand is down” – “lower demand is the main driver” – “rig count is gonna fall – drop 500 rigs in next 6-9 months”

Capex cuts coming… oil prices may be back at $90-100 Brent in 12-18 months but not without rig counts plunging.

At 4:15 Pickens starts to discuss Peak Oil… enjoy –

CNBC: “Peak Oil didn’t happen” ..

Pickens: “that’s all bullshit… I am the expert not you” CNBC: “well you’re not much of an expert if you thought Peak Oil happened”

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

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