11 Mar 2021 | 20:29 UTC — New York

US rig count grows by 1 on week to 492, led by increase in oil activity: Enverus

Highlights

Permian basin rigs climb four to 226

Gas focused-rigs hit four-week low of 121

Chevron slowing activity in Permian, for now

The US oil rig count pushed to an 11-month high in the week ended March 10, led by a continued recovery in the Permian basin, Enverus data showed.

The number of oil rigs active in the US climbed five over the past week to 371, Enverus data showed March 11, the highest since the week ended April 15.

This gain was countered by a three-rig slide in the number of active gas rigs to 121, leaving the total US oil and gas rig count up one at 492.

The extra oil rigs were found almost entirely in the West Texas/New Mexico Permian basin, where operators added four rigs for a total 226, marking the highest since the week ended April 29.

The Denver-Julesburg play added a single rig for a total 15 active in the region, pushing the rig count there to the highest since the week ended April 8.

Rig counts were static at 17 and 14 in the SCOOP-STACK and Bakken, respectively, and Eagle Ford operators idled a single rig, leaving 36 active in the play.

Rig counts were lower across all the major gas-focused plays. Haynesville basin operators dropped one rig, leaving a total 46; the Marcellus count was down two at 32; and the Utica basin rig count fell by one to 11.

Disciplined drilling

While Permian rig counts have steadily climbed since August, operators remain slow to resume pre-pandemic drilling activity.

Prior to the coronavirus pandemic and the OPEC-related price crash of oil and gas in spring 2020, majors were leading the way in rig growth in the Permian basin, according to data by S&P Global Platts Analytics and Enverus. But now most of the companies returning rigs to the basin are non-majors, as majors are allocating time and resources to non-Permian projects to create more balanced financial sheets.

This shift has led to a much slower recovery than recent price levels would suggest. Front-month WTI averaged just below $65/b last week, the highest since April 2019, but the most recent peak in Permian rig counts came in late February 2020, when WTI was holding in the $50-$55/b range.

Permian operators on average require a $30-$35/b WTI price environment to ensure their wells will produce cash-flow neutral results, according to Platts Analytics data. This internal rates of return rises to the $40-$45/b range for the Denver-Julesburg, Bakken and Eagle Ford basins, while IRRs for SCOOP-STACK operators are on average above $45/b.

Platts Analytics IRRs are based on a half-cycle, after-federal corporate tax analysis, which excludes sunk costs such as acreage acquisition, seismic and appraisal drilling.

Chevron executive at a March 9 annual investor meeting said the company will continue to take it slow in the Permian Basin for now, after altering its growth timeline a bit, but the basin's production leader still plans to easily exceed 1 million b/d of oil equivalent from the region by the middle of the decade.

While Chevron had previously planned to hit a plateau of 1.2 million boe/d by 2024, the timeline for exceeding 1 million boe/d is pushed back to 2025 as Chevron continues to maintain just five drilling rigs and two completions crews in the region, down from 17 rigs early last year.


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