The good times of the US oil and gas shale boom seem to be in the rearview mirror as Baker Hughes reported last week (in its regular assessment of drilling industry activity) that the US rig count dropped for the 27th straight week. The count dropped by 9 units during the week ended June 12, 2015, to finish at 859 rigs operating across the US.
Over the past 27 weeks, more than 1,060 rigs have been removed from the market. Compared with the same week a year ago, the count is down by 995 units.
On one hand, continued low oil and gas prices crimp the profits and capital spending of oil and gas producers. On the other hand, a sluggish global economic recovery does not allow energy companies to quickly reduce current oil and gas stockpiles.
Doom and gloom for US shale explorers? Not quite so fast. After 22 straight weeks of more than double-digit declines, the drop in the rig count over the past five weeks has slowed to an average of only seven rigs a week.
Indeed, the US Energy Information Administration (EIA)’s Short-Term Energy Outlook forecasts that overall US crude production will actually pick up this year, averaging 9.4 million barrels per day (up from 8.7 million barrels per day in 2014) before dropping to 9.3 million barrels per day in 2016.
The agency expects that projected 2015 oil prices will remain high enough to support continued development drilling in the core shale areas in the Bakken, Eagle Ford, Niobrara, and Permian basins.
Also, as producers work through their backlog of uncompleted wells (and completing more wells than they are drilling), higher initial production rates have been achieved and overall production has actually increased.
However, with few newer wells being drilled, the EIA expects overall production to begin to drop this month, with continuing declines going through into 2016.
Deep-pocketed producers should weather the slump well enough. Sitting on vast onshore US hydrocarbon assets, the companies simply have to wait for supply to dwindle, demand to grow, and prices to rise.
That oil isn’t going anywhere (especially while the federal government ban on exporting US oil stays in place, but that’s another story).
It will be there when bust turns to boom again.
British editorial veteran Stuart Hampton has been covering oil and gas companies for Hoover’s since the Neogene-Quaternary period. Well, actually, since the early 1990s. For the best overview of the oil industry and its history he recommends Daniel Yergin’s “The Prize.” You can also follow Stuart on Twitter.