- Rigs decline in all major production areas around U.S.
- Total number of rigs slides to lowest level since May 2002
The U.S. oil industry reached a significant milestone this week on the path to recovery when a month’s worth of plummeting activity culminated in a five-year low for drilling rigs.
Rigs targeting oil in the U.S. fell by 26 to 614 this week, adding to the 35 sidelined in the previous four weeks, Baker Hughes Inc. said on its website Friday. Natural gas rigs were trimmed two to 195 and miscellaneous rigs slipped by one to zero, bringing the total down 29 to 809, the fewest since May 2002. All four of the major crude plays saw less activity, with the Permian Basin in West Texas losing seven oil rigs to 240.
“You’re certainly seeing a right-sizing of the domestic oil industry, and that’s where most of the pain has been felt,” Matt Marietta, an analyst at Stephens Inc. in Houston, said Friday in a phone interview. “This is a step in the right direction.”
The parking of nearly 1,000 land rigs from the last year’s boom times is driving a decline in domestic production as crude prices hover near $45 a barrel. Output of U.S. crude slowed by 40,000 barrels a day to 9.1 million last week, the least since November 2014, according to Energy Information Administration data. Stockpiles rose 3.96 million barrels to 457.9 million in the week ended Sept. 25, according to the EIA, as the summer driving season ended and refineries went offline for seasonal maintenance.
While America’s oil drillers have idled more than half the country’s rigs since last October, more activity cuts will be needed as the world’s largest crude suppliers battle for market share. The crude being pumped out of U.S. shale formations helped create a global glut that’s pushed prices down almost 60 percent since June 2014.
West Texas Intermediate, the U.S. benchmark crude, rose 80 cents, or 1.8 percent, to settle at $45.54 a barrel on the New York Mercantile Exchange.
C&J Energy Services Ltd., one of the largest providers of hydraulic fracturing equipment in the U.S., said this week that it cut more jobs after the market further deteriorated in the third quarter. Chesapeake Energy Corp., the second-largest producer of natural gas, gutted its workforce to a 10-year low to cope with a drop in commodity prices.
Most of the rigs being cut lately are the less powerful ones that were quickly put back to work this summer when oil prices briefly climbed.
“For the most part, this is really unwinding the resiliency that you saw in the more marginal rigs after the first major drawdown in the beginning of the year going into summer,” Marietta said.