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Oil Rigs Jump to Six-Month High as Bakken Drilling Surges

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Dec. 13 (Bloomberg) -- Rigs targeting oil in the U.S. jumped the highest level in six months as horizontal drilling in Texas’s Permian and North Dakota’s Bakken formations surged.

Oil rigs gained 14 to 1,411, the highest level since June, data posted on Baker Hughes Inc.’s website show. The gas count dropped six to 369, the Houston-based field services company said. Oil rigs drilling horizontal targets in North Dakota’s Williston Basin surged by nine to 165, and the same count in Texas’s Permian rose by four to 214, the highest since at least February 2011.

The total U.S. count has risen six of the past seven weeks, increasing by 40 since Nov. 1, as producers use more horizontal drilling and hydraulic fracturing to reach deposits of crude in shale plays. The technological improvements have helped drive domestic oil production to the highest level in a quarter-century.

“Rigs in the Permian are moving up as they learn how to optimize production there,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone. “The Williston is one of the most profitable places to drill, and the rise might reflect anticipation that it’ll be easier to get oil down to the Gulf of Mexico” as pipeline capacity expands.

Horizontal rigs in the Permian jumped 19 percent in the third quarter from a year earlier “as operators continue to shift toward unconventional drilling,” Vincent Piazza, a Bloomberg Industries oil analyst in Skillman, New Jersey, said in a research note Dec. 11. The horizontal rig count rose by eight to 1,145, the highest level in more than a year.

Rising Output

U.S. oil output totaled 8.08 million barrels a day last week, the highest level since October 1988, the Energy Information Administration, the Energy Department’s statistical arm, said Dec. 11. Crude stockpiles fell 2.7 percent to 375.2 million barrels.

West Texas Intermediate crude for January delivery fell 90 cents, or 0.9 percent, to settle at $96.60 a barrel on the New York Mercantile Exchange, up 12 percent in the past year.

U.S. gas stockpiles declined 81 billion cubic feet last week to 3.533 trillion, the EIA said yesterday. Supplies were 7.2 percent smaller than year-earlier inventories and 3 percent below the five-year average.

Natural Gas

Natural gas for January delivery slipped 5.8 cents, or 1.3 percent, to close at $4.351 per million British thermal units on the Nymex, up 30 percent from a year ago.

“The rig count’s reaction time to gas prices is measured in months, not in days,” Williams said. “We’ll see some increases three months from now if prices stay at the current level.”

Oil and gas rigs in North Dakota jumped by seven to 174 this week, the highest level since July. The count in Texas gained six to 848, a three-month high, Baker Hughes said.

Crude output in North Dakota rose to a record 941,637 barrels a day in October, data posted on the state Industrial Commission website today show. Bakken production in the state also climbed to a record 876,540, according to the data.

Producers, including Pioneer Natural Resources Co., Devon Energy Corp. and EOG Resources Inc., will spend almost $2 billion on drilling in the liquids-rich Wolfcamp shale play in the Permian next year, GlobalData, a London-based research and consulting firm, said in an e-mailed statement Dec. 11.

“The recent Wolfcamp Shale boom can be attributed largely to exceptional well economics,” Taryn Slimm, a GlobalData analyst in New York, said by e-mail. “Many companies have transitioned to horizontal development strategies, and several companies producing from the play are already seeing returns on investments from anywhere between 21 percent and 32 percent.”

Rigs on land rose by seven this week to 1,703, the highest since August. Rigs in inland waters climbed by two to 20. The offshore rig count, primarily in the Gulf, lost two to 59. Miscellaneous rigs drop one to two.

Energy rigs in Canada jumped by 24 to 426, the highest count since March.

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

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