Oil and gas rigs in the U.S. tumbled to the lowest level in two months as energy producers used drilling efficiencies to cut the time it takes to bore wells, weakening demand for more equipment.
The total count fell by 11 to 1,748, the lowest since April 5, Baker Hughes Inc. (BHI)’s website shows. Oil rigs dropped by 15 to 1,390, a nine-week low, the Houston-based field services company said on its website. Gas rigs rose for the first time in six weeks, gaining four to 353.
A resurgence in U.S. gas and oil output, driven largely by hydraulic fracturing and horizontal drilling, helped the nation meet 89 percent of its energy needs in March, the highest monthly rate since April 1986, Energy Information Administration data show. Soaring supplies and more efficient techniques such as pad drilling have driven the energy rig count down from more than 2,000 in early 2012.
“You’re seeing a little bit more rig efficiency, more directional rigs for gas and some normal weekly variation,” James Williams, president of energy consulting company WTRG Economics in London, Arkansas, said by telephone. “At current prices, it’s always surprising to see any increase of any sort in natural gas drilling.”
Natural gas for August delivery settled at $3.565 per million British thermal units on the New York Mercantile Exchange, up 31 percent from a year ago.
Exploration and production companies in the U.S. were expected to cut capital expenditures by 2.1 percent this quarter from a year ago “driven by a focus on pad drilling and cost cutting, as well as lower levels of natural gas drilling,” according to a Bloomberg Industries analysis released yesterday.
Producers use pad drilling to add multiple wells on a single site with rigs that are more mobile and can bore into the ground at different angles. Directional rigs targeting gas rose by seven this week to 70, the highest count since December, while horizontal and vertical rigs focused on gas plays fell.
“The directional rigs in gas make some sense,” Williams said. “That is a move for efficiency.”
U.S. gas stockpiles rose 95 billion cubic feet in the week ended June 21 to 2.533 trillion cubic feet, 17.1 percent below a year earlier, the EIA, the Energy Department’s statistical arm, said yesterday. Supply gains have topped five-year averages for four straight weeks as mild weather reduced demand.
U.S. oil output gained 1.9 percent to 7.26 million barrels a day last week, EIA data show. Production reached 7.37 million barrels a day in the week ended May 3, the most since 1992. Stockpiles climbed 18,000 barrels to 394.1 million, according to the EIA.
Crude for August delivery fell 49 cents to $96.56 a barrel today on the Nymex, up 24 percent in the past year.
Anadarko Petroleum Corp. (APC), an independent oil and gas producer, will increase its U.S. onshore production by 10 percent to 570,000 barrels of oil equivalent a day, according to a presentation the company made at the Global Hunter Securities Energy Conference in Chicago June 26.
“And what’s stunning about it is we’re able to do this with 45 rigs,” John Colglazier, vice president of investor relations for the Woodlands, Texas-based company, said at the conference. “It’s extraordinarily capital-efficient.”
Should gas recover to $4.50, Anadarko has “tens of thousands of identified drilling locations” to invest in, Colglazier said.
Gas wells are more competitive against oil wells than they were two years ago, Biliana Pehlivanova, an analyst for Barclays Plc (BARC)’s investment-banking unit in New York, said in a research note June 25.
“Only the best gas wells are drilled today, and those have benefited from an increasing efficiency of drilling,” Pehlivanova said. “In contrast, as oil-directed drilling has accelerated, the economics of the marginal oil wells that are being drilled currently are worse than the economics of the marginal oil wells drilled two years ago.”
At current oil and gas prices, Barclays’s proxy wet and dry gas wells in the Marcellus formation of the eastern U.S. “compete favorably” with a proxy marginal oil well in North Dakota’s Bakken play, she said.
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