US oil, gas rig count up 10 to 770; Eagle Ford, SCOOP-STACK Article:
US oil, gas rig count up 10 to 770; Eagle Ford, SCOOP-STACK at 2-year highs: Enverus HIGHLIGHTS
Eagle Ford at 67 rigs, up 4 on week SCOOP-STACK rises by 2 to 45 US production likely won't grow quickly Author
Starr Spencer Editor
Jim Levesque Commodity
Natural Gas The US oil and gas rig count jumped by 10 to 770 in the week ending March 9, energy analytics and software company Enverus said, as activity in the Eagle Ford Shale and SCOOP-STACK hit two-year highs.
Rigs chasing oil plays totaled 599, up 12, while rigs directed to natural gas fields slipped by two to 171.
Eagle Ford rigs tallied 67, up by four, a figure that hasn't been matched since 68 rigs in the week ended March 25, 2020. In January-February 2020, Eagle Ford rigs totals were in the low 80s.
Sited in South Texas, the Eagle Ford is one of the largest domestic basins with production of 1.14 million b/d of oil and about 5.2 Bcf/d of natural gas, according to the most recent S&P Global Commodity Insights estimates.
In February, the play averaged internal return rates in the low 60%s, S&P Global data showed, slightly lower than the Delaware Basin in the western Permian Basin of West Texas/New Mexico.
Among the eight largest US basins, the SCOOP-STACK play of Oklahoma and the Marcellus Shale, found mostly in Pennsylvania and West Virginia, also gained rigs. The SCOOP-STACK rose by two to 45, a level last seen in late October 2019, while the Marcellus Shale was up by one rig to 41.
The giant Permian Basin shed two rigs, leaving 318, while the Bakken Shale of North Dakota/Montana and the Utica Shale mostly of Ohio each lost one rig, leaving 20 in the Bakken and 12 in the Utica.
The DJ Basin in Colorado and the Haynesville each remained stable on the week at 17 and 71 rigs, respectively.
More US drilling?
Drilling and oil and gas production made headlines not only at the CERAWeek by S&P Global energy conference over the past week but in mainstream news outlets. A major question at White House press conferences was whether the US could raise oil production in the wake of Russia's invasion of the Ukraine in February.
While White House press secretary Jen Psaki claimed E&P operators already have in hand thousands of approved permits but aren't using them, the reasons companies aren't drilling mostly center around operators' unwillingness to over-drill and lack of adequate crews and materials, analysts say.
"A North American accelerated oil supply response is unlikely due to 1) continued [upstream operators'] capital discipline, 2) labor tightness, and 3) equipment and materials tightness/lack of supply (sand, drill pipe, casing, high-spec land rigs, frac spreads, chemicals, etc.)," Evercore ISI analyst James West said in a March 9 investor note. "While capital can solve for many of these issues, it will amplify an already highly inflationary environment."
Experts say it could take a while to ready industry for large production increases.
"It would take a good 18 months to get the industry going again to grow a lot more than the projections" by analysts of up to 1 million b/d production growth in 2022, Scott Sheffield, CEO of Pioneer Natural Resources, said March 9 at CERAWeek.
Whether US active but unused permits actually number 9,000 as Psaki claimed or not, given a low permit cost, many operators will get permits for an "abundance" of wells, said Nathan Hasbrook, energy analyst-supply and production for S&P Global.
Each geologic play or region has unique challenges with getting drill locations determined and permits approved, so companies try to have extra permitted well locations to provide flexibility, Hasbrook said. But a fair number of those "extra" permits are never drilled.
"They [are] for 'just in case'," he said. "If there are delays with permitting or land issues, the management team will have flexibility in deciding where they want to drill and not run short on options."
E&Ps focused on planed budgets
Also, the decision to drill is an economic one for companies. In recent years E&P companies have restricted their capital budgets and returned generous portions of their free cash flows to shareholders. In addition, operators have become vastly more efficient and thus can hold production relatively flat or at low-growth levels while reaping sizable amounts of free cash that easily fund their strategic goals.
And companies seem reluctant to change that model right now, Evercore ISI analyst Stephen Richardson said in a separate March 9 investor note.
"Our discussions with a number of the E&Ps ... suggested that price spikes and major [government] policy shifts are not shifting corporate priorities just yet," Richardson said. "The recurring themes of our conversations was that US supply growth was already on a positive trajectory (rig count has doubled year on year) and 750,000 b/d to 1 million b/d of growth should be expected."
Pioneer CEO Sheffield said barring a prolonged bloody Russia-Ukraine conflict, "none of us are going to jump out" on volunteering to suddenly jettison companies' carefully crafted goals of generally keeping yearly production growth to modest low-single-digit percent production growth. Pioneer's long-term growth projection is 5%, a figure also cited by many of its peers.
Shareholders and investors also look askance at instant or impulsive strategy shifts, Sheffield noted.
"Investor feedback ... [is] saying don't grow more than 5% regardless," he said.
Evercore' Richardson added that the shale industry is more mature than it was several years ago, and the ability to shift many assets to growth mode is unlikely.
"After two to three years of cost reductions and the benefit of a shallowing decline curve (lower maintenance capex), not to mention dwindling inventory, even in a low growth scenario it is clear a return to aggressive growth for most is understood to be self-defeating even if global markets clearly need the barrels," he said.
Oil markets – and others – are seeing record prices and intense volatility as Russia's invasion of its neighbor continues. S&P Global Commodity Insights reporters Rosemary Griffin, Elza Turner, and Rowan Staden-Coats discuss with Joel Hanley what the war in Ukraine means for prices, trade flows, and the refineries of Europe.
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