The US oil and gas rig count jumped 24 to 604 in the week ending July 23 Enverus said, as early second-quarter earnings calls from oil services framed a picture of an upturning oil industry, slightly looser 2022 upstream capital budgets and more activity to come.
The Permian Basin accounted for nearly half the additions, leapfrogging 11 week on week to 259 rigs. The West Texas/Southeast New Mexico basin accounts for about 4.5 million b/d of oil production and nearly 18 Bcf/d of gas output.
Analysts believe WTI oil prices at $70/b-plus since early June no doubt have helped push up the rig count, although experts always caution week-to-week gains may not necessarily mean anything.
"Oil companies typically make these decisions quarter by quarter, so [the recent jump in rig counts] is likely a reaction to being in a new quarter, and we have had prices for several months that will obviously get good return rates on wells," said James Williams, founder and president of WTRG Economics.
S&P Global Platts Analytics analyst Taylor Cavey said recent price strength is no doubt playing a role in producer behavior. "We continually ask ourselves whether or not they will break from the maintenance mode mindset or not," Cavey said.
Cavey noted rig gains were slower at the start of July, when the rig count dropped 12 the first week of the month followed by a gain of four and 24 in the most recent week.
"Month to date, we're at plus 18 compared to June, which is largely in line with our forecast," he said.
While some operators may raise their spending slightly in second-half 2021, operators should largely stick to stated budgets, Cavey said.
"The private operators are a bit of a wild card that could swing the needle," he said. But "at this point, rigs among the private operators have recovered to pre-price collapse levels, and it is our view that they won't go much further."
Apart from the Permian, most of the US' other largest basins saw smalls gains or losses.
The Haynesville Shale of East Texas/Northwest Louisiana gained two rigs to 55, while the SCOOP-STACK (28 rigs) play of Oklahoma, the DJ Basin (14 rigs) of Colorado, and the Utica Shale (13 rigs) of mostly Ohio were all up by one rig apiece.
The Marcellus Shale, largely sited in Pennsylvania, shed a rig leaving 32, while the Bakken Shale of North Dakota/Montana and the Eagle Ford Shale in South Texas were unchanged, leaving totals of 23 and 45, respectively.
The large nationwide jump in rig count came on the heels of generally optimistic earnings calls by big oil services providers Halliburton and Baker Hughes in the past week. Both company CEOs said they see continued signs of a global economic recovery from the pandemic that should spur demand growth for oil and natural gas.
Baker Hughes CEO Lorenzo Simonelli said the company sees activity creeping up in North America in the second half of the year.
"We generally expect the rig count to continue to trend a little higher over the second half, maybe adding an additional 50 rigs or so by the end of the year," he said July 21.
But Williams of WTRG Economics believes H2 2021 rig adds will likely be at least 100 and possibly more.
"Clearly we're on a path of five to 10 rigs a week," he said. "You can't add them too fast because you can't get labor and equipment; it's been stacked without maintenance and you have to fix rigs up."
Oil price weekly averages took a hit on the week after OPEC+ agreed to raise its production by a total 400,000 b/d each month for the rest of 2021, starting in August. But prices later recovered, and WTI was well over $73/b late July 22.
According to S&P Global Platts, WTI averaged $69.56/b, down $4.44 week on week, while WTI Midland averaged $69.37/b, down $4.48, and the Bakken Composite price, $68.54/b, down $4.40.
But natural gas prices rose on the week, pushing Henry Hub averages to $3.77/MMBtu, up 9 cents, and Dominion South to $3.01/MMBtu, up 4 cents.
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