Saudi Looking Beyond Oil Price Slump As Rig Count Spikes

Reuters via Rig Zone ^ | March 20, 2015 | Rania El Gamal & Reem Shamseddine

[thackney]

As the global energy industry stares transfixed at a spectacular drop in U.S. rigs, Saudi Arabia is ramping up the number of machines drilling for oil and gas despite a sharp fall in the price of crude.

Industry sources and analysts say the OPEC kingpin is looking beyond the halving of global oil prices since June 2014 to a time when crude could again be in short supply.

Riyadh is therefore keen to preserve what is known as its spare capacity - the kingdom's unique ability to raise oil output quickly at any given moment.

But to achieve that, Saudi Arabia has to drill much more than in the past, after boosting output to record levels to compensate for global supply outages in the past four years.

"The Saudis are probably worried about everyone else reducing capex as a result of low oil prices and about non-OPEC output falling off a cliff at some point. We all know that supply disruptions are unpredictable but they are certain," said Gary Ross, executive chairman of New York oil consultancy PIRA.

"The increase in Saudi rig numbers is like a signal to the industry - let's be rational. We will need supply growth in the future."

State oil giant Saudi Aramco used a record-high 210 oil and gas rigs in 2014, up from around 150 in 2013, 140 in 2012 and some 100 in 2011, according to previous industry estimates.

Amin Nasser, Aramco's senior vice-president for upstream operations, said this month his firm had yet to decide whether to increase the rig number in 2015 from the 212 currently in use.

But data shows the numbers are still rising.

Excluding non-U.S.-registered rigs such as Chinese or Russian, February 2015 saw a total Saudi rig count of 155, up from 150_January and 146_December....

[thackney]

{US} Oil rigs fall by 41, as slump continues
http://fuelfix.com/blog/2015/03/20/oil-rigs-fall-by-41-as-slump-continues/

HOUSTON — Producers idled more oil rigs this week, as low prices continued to drive cutbacks across the entire industry.

The number of rigs chasing crude oil fell by 41 to 825, according to weekly data from oil service company Baker Hughes. Natural gas rigs fell by 15 to 242 and miscellaneous rigs were unchanged at two.

Combined, the rig count fell 56 to 1,069, putting the total number of rigs 734 lower than it was at this point last year....

[DungeonMaster]

Saudi has decided to flood the market.

[thackney]

Saudi is producing about the same or less oil than they were a year ago.

The only major increases in oil production have come from the US over the last few years. We have changed the market more than anywhere else. Canada to a lesser amount.

EIA estimates that OPEC crude oil production averaged 30.1 million bbl/d in 2014, unchanged from the previous year. Crude oil production declines in Libya, Angola, Algeria, and Kuwait offset production growth in Iraq and Iran. In EIA's forecast, OPEC crude oil production remains flat in 2015 and falls by 0.3 million bbl/d in 2016.

[RayChuang88]

I think Saudi Arabia knows that there is a LOT more oil that could be extracted out of the Arabian Peninsula if they would apply more modern extraction methods (fracking, pressurized injection or CO2 gas or steam, special detergent fluid injection). They have to do it fast because if the sanctions against Iran lift, Iran itself could jump on these extraction technologies and could pose a gigantic economic threat to the Saudis--not a good idea when the Arabs of Saudi Arabia and the Iranians have a historic rivalry dating back well before the rise of Islam.

[Obadiah]

So the benchmark price is spiking today due to the precipitous drop in US rigs, yet the Sauds say they are increasing their rigs. Something does not compute.

Why is the market spiking if the Saudis are basically replacing the US rig count? So, really, just sideways movement.

Just why are the Saudis increasing their rigs in a low price market other than to drive producers out in the US?

[thackney]

Saudi has been applying water flood, CO2 etc to some of the fields for many years trying to keep up the flow rate from those old fields.

I think Saudi went into the current price situation, well aware that it was coming. They were well prepared with cash reserves.

Saudi is far better than the typical national oil company in planning for the future. Taking advantage of declining cost for drilling and completion in the declining market is a sign of strong finacials and future planning.

[thackney]

So the benchmark price is spiking today

I'm not sure I equate bouncing off the bottom the same with spiking.

Why is the market spiking if the Saudis are basically replacing the US rig count?

I don't think this news article has a thing to do with today's price change.

Nor do I consider Saudi using ~60 more rigs a replacement of the +700 we have shut down.

Just why are the Saudis increasing their rigs in a low price market other than to drive producers out in the US?

I have seen Saudi to be long-term planners in their oil industry. Rig rates and labor are cheap right now. I see them building up future capacity. They have the cash reserves to afford it.

[thackney]

Oil jumps on weaker dollar
http://www.reuters.com/article/2015/03/20/us-markets-oil-idUSKBN0MG07G20150320

Oil prices jumped on Friday, with U.S. crude up about 4 percent, after the dollar fell on interest-rate uncertainty, lifting demand for dollar-denominated commodities from holders of other currencies.

[DungeonMaster]

Saudi is producing about the same or less oil than they were a year ago.

Yes, I'm just recalling the Opec meeting where Saudi refused to reduce production to bring the price up. I believe their statement was that they didn't care if the price dropped to $20/bbl.

[thackney]

Correct. But not cutting production is hardly the same as flooding the market.

I am amazed at the conservatives that are angry that OPEC was ineffective to operate as a cartel and unwilling manipulate the market.

[DungeonMaster]

But not cutting production is hardly the same as flooding the market.

Yes you're right. OK Saudi said they would not be the first to flinch.