US oil, gas rig count falls 11 to 663 on week, lowest level since mid-November 2021

The US oil and natural gas rig count fell by 11 to 663 for the week ended Jan. 10, S&P Global Commodity Insights data showed, on the eve of fourth-quarter earnings calls that aren't expected to bring much in the way of surprises about commodity prices, drilling activity or petroleum supplies.

The rig count is now the lowest since mid-November 2021 and has dropped by 33 in the last two months since mid-November, an S&P Global Commodity Insights analysis showed Jan. 18.

Rig counts in the eight domestic unconventional basins were slightly more varied in both rig losses and gains than normal, with five basins losing rigs, one relatively large gain in the Eagle Ford Shale and two basins unchanged on the week.

For the week ended Jan. 10, the Eagle Ford Shale gained five rigs to 60, the only weekly individual basin gain. The Williston lost four rigs, leaving 32, and the SCOOP-STACK and Marcellus Shale each lost two rigs, leaving 27 and 23, respectively, while the DJ Basin and the Utica Shale each lost one rig, leaving 14 and 10, respectively.

Unchanged on the week were the Permian Basin at 309 rigs and the Haynesville Shale at 56.

US rig counts continue ticking down

Though US oil production is slowly climbing, the US rig count is declining, according to S&P Global Commodity Insights data. So far in January, the month's rig count averages 669, against 677 in December 2023, 698 in November 2023, 699 in September, 711 in August and 732 in July.

Yet from October 2022 to October 2023, US oil production grew about 870,000 b/d, according to US Energy Information Administration data. Current domestic oil production averages about 13.2 milllion b/d, even with the loss of about 190 rigs during that period, the EIA said.

For natural gas, the gross withdrawals figure was 126 Bcf/d in October 2023, up from 123 Bcf/d in January 2023.

Experts credit well drilling/completion efficiencies for rising production in the face of rig count declines.

Expectations on capex and oil prices for 2024 now appear flatter than the market had dialed in a few months ago when it was believed activity would increase and a runup would occur in both commodity prices and US rig counts.

But nearly three weeks into 2024, analysts have rather "ho-hum outlooks" -- to quote Evercore ISI analyst Stephen Richardson -- for a year that still has 49 weeks left on the calendar.

"Full year 2024 [could show a] likely migration down in spend and volume expectations on the margin with the combination of ... WTI at $72/b and the prospect of growing OPEC spare capacity near-term," Richardson said in an investor note Jan. 15.

With SLB, a big oilfield services and equipment provider, kicking off Q4 2023 energy sector earnings Jan. 19, "we expect service companies to focus on continued momentum in the international markets ... and to reset expectations regarding North America land, either focusing on the resiliency of their portfolio or looking ahead to 2025's greener prospects," investment bank Tudor Pickering Holt said in its daily investor note Jan. 18.

Flat to slightly down NAM, US capex

Analysts are looking for flattish to slightly up or down North American/US capital budgets, while S&P Global's view has North American capex down as much as 10%. Also flattish going into earnings season is anticipated US/North American activity in 2024.

"Notably, we expect the Big Three [SLB, Halliburton and Baker Hughes] to take a more somber view on North America land (i.e. likely down year-over-year or flat at best) while likely fielding questions around the potential impact that unrest in the Middle East could have on operations," TPH said.

"Conversely, we expect the Lower 48 land pure-plays to field questions regarding how the collapse in natural gas prices and muted activity trends over Q4 have shifted their outlooks for pricing and activity," the bank said. "Upstream channel checks almost uniformly indicate a preference to defer incremental activity and to build DUCs [drilled but uncompleted wells] over releasing a rig outright."

Moreover, the current wave of announced multibillion-dollar upstream consolidation deals -- ExxonMobil with Pioneer Natural Resources, Chevron with Hess, Occidental Petroleum with CrownRock and APA Corp with Callon Petroleum -- won't foster more drilling, at least in the short term, Jim Wicklund, managing director of business development for investment bank PPHB, said in his weekly industry newsletter.

"When oil companies combine, budgets get rationalized," Wicklund said. "With so many big combinations of companies involving US basins, where almost all activity can be canceled within 30 days, expect a slower start to the year."

"Typically, the US rig count declines after year-end as urgency of spending budgets is gone [from the prior year and] winter weather increases costs," he added. "The impact on 2024 will exist, although only temporarily. However, everything is usually back on track within a year, making the future look brighter than it otherwise might."