Drilling Surge in Permian Drives U.S. Oil Rigs to Record

Rigs targeting oil in the U.S. surged to a record this week as producers from Concho Resources Inc. to Pioneer Natural Resources Co. boost horizontal drilling in the Permian Basin.

U.S. oil rigs jumped by 13 to 1,443, the highest level since Baker Hughes Inc. separated its oil and gas rig counts in 1987, the Houston-based company said in a weekly report posted on its website today. Rigs drilling horizontally in the Texas-New Mexico formation rose by 10 to 265, the highest level since at least February 2011, while vertical rigs there gained three and the directional count added one.

“One could argue that all of the increase in the oil rig count this week was because of the Permian,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone. “While it’s one of the oldest fields in the U.S., there are multiple producing formations there and companies are learning how to optimize horizontal drilling in them. The growth is evidence that they’re figuring it out.”

Hydraulic fracturing and horizontal drilling have unlocked shale deposits of oil from North Dakota to Texas, boosting crude output to the most in a quarter-century and cutting energy costs for industries from airlines to chemical plants. The increase also helped the U.S. meet 86 percent of its energy needs in the first 11 months of 2013, the highest level since 1986, Energy Information Administration data show.

Rig Output

Crude production in the Permian is expected to rise to a record 1.41 million barrels a day in March from 1.3 million a year earlier, the Energy Information Administration, the Energy Department’s statistical arm, said in a Feb. 10 report.

Pioneer, which holds one of the largest positions in the Permian, is spending “the vast majority” of its 2014 drilling capital in northern areas of the basin such as Spraberry and Wolfcamp, Timothy Dove, the Irving, Texas-based company’s chief operating officer, said during a presentation March 4.

While Pioneer is drilling in a 300-foot-thick (91-meter thick) shale formation in Texas’s Eagle Ford play, the Permian offers shale thickness of 3,500 feet, Dove said. “So this is why this area has really substantial running room going forward,” he said.

Concho, the biggest Permian Basin operator drilling for oil, is adding four rigs throughout the year, E. Joseph Wright, the Midland, Texas-based company’s chief operating officer, said at a conference March 3.

More Growth

“When you look at our rate of growth going forward, in the last half of 2014, we’ll increase that rate of growth and on into 2015 as well,” Wright said.

U.S. oil output climbed 18,000 barrels a day last week to 8.08 million, EIA data show. Crude stockpiles jumped 1.43 million barrels to 363.8 million.

West Texas Intermediate crude for April delivery rose $1.02, or 1 percent, to settle at $102.58 a barrel on the New York Mercantile Exchange, up 12 percent in the past year.

U.S. gas stockpiles dropped 152 billion cubic feet last week to 1.196 trillion, EIA data show. Supplies were a record 38.8 percent below the five-year average and 43.2 percent below year-earlier levels.

Natural gas for April delivery dipped 0.9 percent to $4.618 per million British thermal units on the Nymex and has risen 29 percent in the past year.

Gas Rigs

U.S. gas rigs jumped 10 to 345 this week, Baker Hughes said. The total rig count rose by 23 to 1,792, the highest level in more than a year.

“We may be finally be seeing some impact in the gas count from natural gas prices,” Williams said.

Iain McIntosh, Baker Hughes’s vice president for U.S. lands operations, said at a conference March 5 that the amount of time it takes to drill a gas well has fallen to less than 10 days in some cases from 40.

Rigs on land jumped by 23 this week to 1,719. Rigs in inland waters and miscellaneous rigs, which usually drill for geothermal energy, were unchanged at 18 and four, respectively. Offshore rigs, primarily in the Gulf of Mexico, were also unchanged at 55.

The count in Texas gained the most this week, up 20 to 864. Energy rigs in Canada fell by 39 to 587.

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