US oil, gas rig count leaps 13 to 541 as private E&Ps add rigs: Enverus

Houston — The US oil and gas rig count leaped by 13 to 541 in the week ending April 14, rig data provider Enverus said, boosted by private operators continuing to add vertical rigs in more conventional plays.

Oil plays were the target of new drilling, as the rig count jumped by 14 to 419, while rigs chasing natural gas fell by one to 122.

"It's a strange week for rigs," said Andrew Cooper, quantitative analyst for US oil supply with S&P Global Platts Analytics. He noted the week's gains appeared to come mostly from vertical/directional rigs, as horizontal rigs, synonymous with shale and unconventional drilling, stayed at 420 for the third straight week.

Private E&Ps picked up seven rigs this week, for a total of 140, Cooper added.

"Even if private E&Ps continue to lead the rig and drilling activity surge, this likely won't be as powerful a production story, as their wells tend to bring on significantly less oil or gross gas per completion compared to the more experienced public companies," he said.

The biggest movement in rig adds came outside the major named basins, with rig totals in the "other" category, which comprises smaller basins where mostly vertical wells are drilled in conventional plays, growing 13 to 123.

Permian, Eagle Ford up 1 rig

Most of the eight largest domestic basins added or dropped a single rig in the week.

The giant Permian Basin of West Texas and Southeast New Mexico gained one rig to 236, after losing one the week prior.

The Eagle Ford Shale in South Texas added a rig to reach 44 , the Marcellus Shale, mainly found in Pennsylvania, was up one to 32 rigs, and the Bakken Shale of North Dakota/Montana gained a rig for a total of 16.

The Utica Shale, mostly in Ohio, remained static at 13 rigs.

The Haynesville Shale of East Texas/Northwest Louisiana and the DJ Basin of Colorado each lost a rig apiece, leaving totals of 47 and 13, respectively.

The SCOOP/STACK play in Oklahoma lost two rigs, leaving 17.

$80/b oil?

Stronger prices have led to optimism as E&P companies prepare for Q1 earnings conference calls, with oil staying near or above $60/b.

According to S&P Global Platts, WTI crude averaged $60.39/b in the week ending April 14, up 58 cents on the week; WTI Midland averaged $60.74/b, up 55 cents; and Bakken Composite averaged $59.75/b, down 18 cents.

For natural gas, prices at Henry Hub averaged $2.49/MMBtu, up 9 cents; and Dominion South prices averaged $1.81/MMBtu, down 1 cent.

And there could be further upside to pricing as vaccinations rollouts increase and oil demand recovers.

"With [crude inventory] builds in March and possibly April, the picture looks more balanced as we head into the second quarter," analysts at energy researchers Bernstein said in an April 15 report. "Assuming, however, the vaccine proves effective and the world economy starts to reopen in second-half 2021, then we expect a significant 4 million b/d to 5 million b/d increase in demand between Q2 2021 to Q4 2021."

"With limited non-OPEC supply growth and only 2 million b/d coming from OPEC plus, it implies that the market will revert to deficit in the second half of the year with significant inventory draws, which will be positive for oil price," Bernstein said. "A year-end price above US $70/b and possibly $80/b is entirely reasonable based on current projections."

Production, spending restraint

A phenomenon of higher prices and the potential for further increases, coupled with upstream executives who steadfastly refuse to loosen their purse strings and spend more, seems baked into 2021 fundamentals even amid the sector's growing confidence.

Sustained under-investment, together with a gradual recovery in operating cash flow and energy demand, will keep oil and gas production volume growth low in 2021, Moody's analyst Jonathan Teitel said in an April 14 note.

"Our evaluation of 55 North American E&P firms shows total capital spending declining by less than 1% in 2021, while production will grow by just 3%," Teitel said.

Come what may, upstream operators have pledged to resist the temptation to swerve from stated 2021 capital budgets set earlier this year. But their determination remains to be seen, as they may be put to the test by midyear if oil stays at or climbs from current levels.

"Everyone believes that 2022 will see a higher average oil price and higher capital spending than in 2021," Jim Wicklund, veteran oilfield observer and managing director of energy investment banking at Stephens, Inc., said in a recent investor note. "So, the next argument is the angle of the slope of recovery."