Posted on 12/17/2014 6:33:10 AM PST by thackney
As many as 550 drilling rigs may have to sit on the sidelines of U.S. shale oil patches over the next few months, analysts say, as oil prices have folded nearly in half since this summer.
The projections come a few days after Texas drilling rigs led the nation in a 1.4 percent weekly decline in the U.S. active rig count, according to oil field services firm Baker Hughes. Oil companies cut 20 rigs in the Permian Basin, a sharp turnaround from the flurry of rigs and hydraulic fracturing equipment that had rushed to West Texas earlier this year.
“We think there’s a significant amount of pain coming” to the oil industry and its service companies next year, said Praveen Narra, an analyst with Raymond James. Any recovery in U.S. drilling activity will likely take longer than usual in oil-price downturns because the decline was set off by a glut in crude supplies, rather than less demand, he said.
“The problem isn’t as quick of a fix as it would be if demand rebounded,” Narra said, adding that service costs for rigs and other oil tools will likely come down.
Rigs could begin to see less work starting early next year, following a 40 percent drop in the number of new U.S. drilling permits issued from October to November, Jason Wangler, an analyst with Wunderlich Securities, wrote in a note to clients on Tuesday.
So far, the most active U.S. oil basins have seen the sharpest fall in permits, as new issues in the Permian Basin in West Texas dropped 38 percent last month, the Williston Basin in North Dakota fell off 29 percent and the Eagle Ford Shale in South Texas declined 28 percent, according to Wunderlich.
The U.S. rig count has increased 8 percent this year to 1,920 before Friday, and about 1,400 to 1,500 rigs are more likely to find work next year, Wangler said.
Some private producers, Wunderlich analyst Irene Haas wrote in a separate note, “believe that there will be more than 500 rigs idling in the next 60 days,” meaning more than a quarter of active U.S. rigs will be off the market soon.
Narra said Raymond James pegs the number of idled rigs closer to 550 across the United States. The analyst noted a handful of U.S. oil producers have already announced smaller spending budgets for 2015, a warning for U.S. oil-field service companies and drillers, which get the bulk of their income from exploration and production spending.
On Tuesday, Tulsa, Oklahoma-based Laredo Petroleum estimated it would have an annual budget of $525 million, 44 percent below market expectations, according to Tudor, Pickering, Holt & Co. Fort Worth’s Range Resources Corp. said Monday it is cutting its annual budget 18 percent to $1.3 billion next year.
Last week, Houston-based Oasis Petroleum said it plans to spend $750 million to $850 million in 2015, compared to the $1.4 billion in spending it had announced for this year. ConocoPhillips said earlier this month it would pare its 2015 budget down 20 percent from this year, to $13.5 billion.
Doesn’t make sense to me. Cheaper fuel should increase demand. I know I’ll be more apt to increase my range and trip frequency.
They'll let US production get mothballed, then start raising prices - but just enough to keep US wells shut down.
Cheaper fuel should increase demand.
Sure, but cheap fuel decreases supply. This is part of supply.
The more expensive, marginal oil plays that needed higher prices to produce enough profit get delayed until prices support that areas cost of production.
The cheaper areas of production continue to get drilled. We are not shutting down flowing wells, we are slowing down growth rate of new production.
“OPEC’s plan is working. They’ll let US production get mothballed, then start raising prices - but just enough to keep US wells shut down.”.............
At least someone has it figured out.
They are not shutting down flowing wells at >$50 a barrel.
But they are drilling fewer new ones.
And then we have a real crises in the middle east, or Iran chocking off the Straight of Hormuz and the price of oil really sky rockets, then our economy takes a nose dive like we haven’t seen since the great depression.
It’s interesting that the stocks of the four oil companies cited in this article that are planning to drastically lower their exploration budgets are soaring.
Oasis Petroleum (OAS) and Loredo Petroleum (LPI) have gone up by double-digit percentages, and the other two — Range Resources (RRC) and Conoco Phillips (COP) — are up by 5 percent.
But no wonder. Think of all the money those companies will save by not drilling when oil prices are too low to make reasonable profits. The companies can sit back and wait, and watch their stock prices rise, until conditions are more favorable.
Meanwhile, countries like Iran and Russia can’t sit back and wait, since they must sell oil or their people will starve and eventually revolt. So Saudi Arabia will keep prices low.
So, as people can afford to take longer trips and more vacations due to lower oil prices, we will also be able to enjoy witnessing the Ayatollahs and Vladimir Putin being overthrown and more democratic regimes being set up in Iran and Russia.
Depending where in time you compare to, soaring can be viewed as bouncing off the bottom.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.