US oil, gas rig count falls seven to 694 on the week; most basins lose rigs or are unchanged

The US oil and natural gas rig count fell by seven to 694 on the week ended Sept. 20, an analysis by S&P Global Commodity Insights showed, as most basins lost rigs or stood still.

The decline came from oil-focused rigs, which dropped by 11 to 568, the Sept. 28 analysis showed. All were vertical rigs that generally are used by private upstream operator in smaller plays. On the other hand, gas-directed rigs rose by four to 126, largely from horizontal rigs.

Except for a recent adjustment of the total rig count for the week ended Aug. 23 from 703 to 698, the current week was the first time the rig count dipped below 700 since the final week of December 2021, according to S&P Global data.

The elusive rig count bottoming, which has been talked up nonstop around the sector during the last few months, seems to be just about arrived – but at this point the figures aren't firm enough to call it. During August and September, the S&P Global rig count has see-sawed, ticking up and down week to week.

"Investors continue to look for a floor in the rig count and it feels like we are finally getting close to one," Evercore ISI Group analyst James West said.

'Modest' rig count growth of 40-50 seen

In a Sept. 27 investor note, West said he had expected the rig count to have bottomed by late August/early September. Now, "we expect the rig count is forming a floor close to these current levels and will start to increase into the end of the year," he said.

"Growth next year [2024] will be modest with approximately 40-50 rigs being added in the Lower 48," West added.

For the week ended Sept. 20, the Bakken Shale posted the largest number of rig additions of the eight unconventional that S&P Global tracks – namely, five, making a total 37 rigs in that play. Also, the Haynesville Shale gained two rigs, for a total 51.

But all other basins lost rigs or were unchanged. The Permian Basin shed the most rigs – four, leaving 319. That is the fewest number of Permian since early September 2022.

The Eagle Ford Shale and DJ Basins were each down one rig, leaving 51 and 17 respectively, while the Marcellus Shale, SCOOP-STACK and Utica Shale were all unchanged, leaving 27, 26 and 10 respectively.

The SCOOP-STACK has not been close to 50 rigs since early December 2021. Also, the week ended Sept. 20 is the Utica's fourth consecutive week at 10 rigs.

As third-quarter 2023 draws to a close and quarterly upstream and oilfield service company conference calls loom in late October, industry thinking revolves around stronger commodity prices going forward as well as a tighter oilfield service market and cost deflation that is a bit less than earlier anticipated, investment bank Tudor Pickering Holt said.

"Client conversations are quickly gravitating towards the building momentum on LNG demand, views on Haynesville inventory and implications for basin supply, and higher-for-longer price potential in 2025-2030," TPH said in a Sept. 28 investor note. "Shale inventory remains extremely topical ... [as well as] a tightening service market by 2025."

Q3 calls focus on lower service cost deflation

"Upstream conference calls on the horizon likely zero in on service cost deflation next year [2024] that is closer to 0-5% versus previous expectations of more than 5% prior to the recent runup in crude," the bank said.

The recent strength in commodity prices has helped support "constructive" views for higher capex spending in 2024, West said.

"In North America, capital discipline remains the key mantra as we have not seen a sudden response to higher commodity prices for the industry, either in terms of adding rigs or [frack] capacity," he said.

Fracking crews completing and readying oil and gas wells for production were as high as 295 earlier this year, but have largely nested around the 250-260 range since July.

The US gas rig count has dropped since early 2023 from a high of about 190 at the start of the year to the current 126 -- and with an expected higher gas price anticipated in 2024 than the Sept. 27 NYMEX price settle of roughly $2.76/MMBtu, it's a safe bet that a number of gas-oriented rigs will return to domestic fields in 2024.

According to the latest Dallas Fed Energy Survey released Sept. 27, roughly 84% of the survey's 142 respondents polled in mid-September said they expect the US oil rig count in six months to be fairly near the 568 cited above for the week ended Sept. 20, according to S&P Global data – or for the Baker Hughes oil rig count, around 507 which is where it was for the week ended Sept. 22.

Another 14% of executives polled thought the US oil rig count would be "much higher" than currently, with just 1% projecting it would be "much lower," in six months, the Dallas Fed stated.