Oil Rigs Slump to 6-Month Low on More Efficient Drilling

Oct. 25 (Bloomberg) -- Rigs targeting oil in the U.S. declined to a six-month low as producers pulled less-efficient equipment to focus on higher-yielding directional rigs.

Oil rigs dropped by four to 1,357, the lowest count since April 5, data posted on Baker Hughes Inc.’s website show. Vertical and horizontal oil rigs slid while directional oil rigs, which allow for multiple wells off single pads, climbed by four, the Houston-based field services company said.

The U.S. total oil and gas rig count has declined by 44 since Aug. 2 as producers adopted new technologies to shorten drilling times and boost well productivity in shale formations, weakening demand for new equipment. The amount of crude produced per rig in the U.S. has surged to a record in both North Dakota’s Bakken and Texas’s Eagle Ford plays, according to the Energy Information Administration. The total number of directional rigs rose by 10 in the total count this week. Vertical fell by 10 and horizontal dropped by one.

“The drop was in vertical rigs while the higher-producing horizontal and directional rigs were stable,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone. “We’re not going to see a big change in production because of this.”

U.S. oil output rose to 7.9 million barrels a day in the week ended Oct. 18, the highest since March 1989, data compiled by the EIA show. Fracking and horizontal drilling boosted output from shale formations, helping the U.S. met 87 percent of its own energy needs in the first six months of 2013, on pace to be the highest annual rate since 1986.

Rising Stockpiles

Oil stockpiles climbed 1.4 percent last week to 379.8 million barrels, the highest level for this season in at least 10 years.

Crude production per rig in the Bakken play rose to a record 438 barrels a day in September from 293 a year ago, the EIA, the U.S. Energy Department’s statistical arm, said in an Oct. 22 report. Output per rig in the Permian increased to a record 388 barrels a day from 302 a year earlier.

“New technologies for drilling and producing natural gas and oil have made traditional measures of productivity, such as a simple count of active rotary drilling rigs, obsolete,” the EIA said in the report.

West Texas Intermediate crude for December delivery increased 74 cents, or 0.8 percent, to settle at $97.85 a barrel on the New York Mercantile Exchange, up 14 percent in the past year.

Gas Rigs

Natural gas for November delivery rose 7.8 cents, or 2.2 percent, to settle at $3.707 per million British thermal units on the Nymex, up 8 percent from a year ago.

The U.S. gas rig count increased by four to 376 this week, a three-week high, according to Baker Hughes.

“Gas rigs are still profitable in some plays if you’re in a wet zone,” Williams said. ‘There are lots of areas where you can make a lot of money off natural-gas liquids sales.’’

U.S. gas stockpiles rose 87 billion cubic feet last week to 3.741 trillion, the EIA said yesterday. Supplies were 2.4 percent below year-earlier inventories and 2.1 percent above the five-year average.

Producers have been pulling rigs out of gas-rich plays to focus on more profitable crude- and liquids-drilling since 2009, with oil-targeted rigs now making about three-quarters of the total count. Crude is trading more than 26 times as much as gas, up from 10 times five years ago.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net