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Permian sees biggest gain as US oil, gas rig count jumps 16 to 716

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By: Star Spencer – S&P Global Platts – The US oil and gas rig count jumped 16 to 716, energy analytics and software company Enverus said Dec. 16, with the Permian by far recording the biggest weekly domestic gain.

The week’s total rig count is the highest the total rig count has been since the first week of April 2020, when upstream producers were cutting their budgets and pulling rigs from domestic fields in response to low oil demand and plunging oil prices as the coronavirus pandemic raced around the globe.

For the week ended Dec. 15, oil-directed rigs gained 15 to 563, while gas-oriented rigs gained one to 153.

Permian rigs rose by 16 to 306 – the first time rig counts in the West Texas/New Mexico basin have been above 300 since mid-April 2020.

In addition, rigs in the Eagle Ford Shale of South Texas crept up five to 58.

In just the past two weeks, 28 rigs have been added to domestic fields, including 12 the week ended Dec. 8.

“The recent increase has been impressive,” Taylor Cavey, S&P Global Platts Analytics senior analyst for supply and production, said. “That said, it is largely in line with [our] forecast. The Permian recovery has been fairly slow up until recently. I’m guessing it is finally catching up.”

Permian rigs hovered around the 270 mark during October and the first half of November 2021 before striding up.

Smaller basins gain rigs

Outside of the Permian, the DJ Basin of Colorado gained two rigs, for a total of 18.

Otherwise, two basins each lost one rig while two other basins gained one rig each.

Adding a rig was the Haynesville dry gas basin in East Texas/Northwest Louisiana, for a total of 54, and the SCOOP-STACK play in Oklahoma, for a total of 40 rigs.

Shedding one rig each were the Marcellus Shale mostly gas play in Pennsylvania and West Virginia, leaving 35, and the Bakken Shale in North Dakota/Montana, leaving 31.

The Utica Shale, sited chiefly in Ohio, remained at 12 rigs for the third straight week. It has been at that level more or less for virtually all of 2021. Its 12 rigs this year represented a recovery from single digits and a low of six at times in H2 2020.

Whereas some years, rig counts drop in the weeks immediately prior to Christmas as upstream budgets run out of steam and crews take year-end holidays, that didn’t happen this year.

In 2021, especially after WTI oil prices rose above $70/b in June 2021 and stayed there save for some pandemic-related blips including late November/early December, the oil path has been productive both financially and operationally for the industry as a whole.

Oil prices rose this week, although that was not true of gas prices, according to Platts estimates.

WTI averaged $71.10/b, up $1.77, while WTI Midland averaged $71.82/b, up $1.86, and Bakken Composite, $70.34/b, up $2 even.

But at Henry Hub, gas prices averaged $3.74/MMBtu for the week, down six cents, while at Dominion South prices were $2.88/MMBtu on average, down 38 cents.

Cash flows mount

Higher oil prices and continued well and other efficiencies have assured mounting cash flows – enough to not only cover capital budgets that haven’t budged much from 2020 but allow for increasing dividends to shareholders.

“We estimate that our US E&P coverage returns near $30 billion of cash in 2022, representing 9% of current market caps,” RBC Capital Markets analyst Scott Hanold said in a Dec. 14 investor note.

Year-2022 should show CAPEX levels that have risen about 20% for North America with the Permian leading the way, slightly more in the US, and about 15% for international levels, analysts say.

But companies and experts say at least half the increase will go to cover inflation rather than increased field activity, although rig counts are expected to continue rising in 2022. Platts Analytics sees the brisk pace of increases decelerating around Q3 2022 and slowing further through 2023, Cavey said.

“Perhaps the most prescient item on the minds of investors and potentially the biggest factor impacting 2022 capital budgets will be the degree to which operators can mitigate inflation impacts,” Wells Fargo analyst Nitin Kumar said in a Dec. 13 investor note.

“While expectations have pushed into the roughly 10%-15% range in recent months, there may be some hope at the margin as some leading-edge indicators point to an easing of supply chain woes.”

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