The U.S. oil and gas rig count fell off a cliff last week shedding 21 active rigs (down 17 oil rigs, 4 gas rigs) punctuating a steady year-long decline. Since January, oil rig counts are down 20.6% (-181) while gas lost 33.7% (-65).
The reason for these losses is simple to understand: tremendous production gains year over year have served to outpace demand, which in turn suppresses per barrel prices, which of course, prompts producers to slow the pace of development. The obvious bad news for upstream service and equipment providers is the end result.
For the oil industry as a whole, rig counts have come to no longer serve as a metric of success. Efficiency gains in per rig production have soared. Where in 2007, a single rig in the Bakken produced 111 barrels of oil a day, in October 2019, that average was up 1300% at 1,491 bbl/d.
Permian per rig average gains are up 1400% at 794 bbl/d per rig.
Total U.S. production continues to surge moving from 11.7 million barrels per day at the beginning of the year to 12.6 million - nearly a million barrels a day in additions in less than a year.
Such data is of little comfort to upstream support providers and the news may be getting worse. Power house service company Schlumberger reported an astonishing third quarter operating loss of $11.4 billion.
Halliburton’s revenues dropped 11%. Oilprice.com reported that “Halliburton stacked more equipment in the third quarter than it did in the first and second-quarter combined.” Its CEO was quoted in that article stating “we expect customer activity to decline across all basins in North America land, impacting both our drilling and completion businesses,” in the fourth quarter.
As it stands, estimates for the near term through the end of 2020 are that the global supply of oil will continue to outpace demand adding an average of 380,000 barrels of oil per day to inventories. Most analysts agree that this trend won’t begin to reverse until early 2021.