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US Drillers Add Oil Rigs

August 16, 2019

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U.S. energy firms this week increased the number of oil rigs operating for the first time in seven weeks despite plans by most producers to cut spending on new drilling this year.

Companies added six oil rigs in the week to Aug. 16, the biggest increase since April, bringing the total count to 770, General Electric Co's Baker Hughes energy services firm said in its closely followed report on Friday.

In the same week a year ago, there were 869 active rigs.

The oil rig count, an early indicator of future output, has declined over the past eight months as independent exploration and production companies cut spending on new drilling as they focus more on earnings growth instead of increased output.

Production has continued to rise despite the decline in the rig count because productivity has increased in most basins this year, meaning drillers are getting more oil and gas out of each new well even though they are operating fewer rigs.

The U.S. Energy Information Administration (EIA) this week projected U.S. crude output from seven major shale formations would rise by 85,000 barrels per day (bpd) in September to a record 8.77 million bpd.

In total, the EIA projected U.S. oil production would rise to 12.27 million bpd in 2019 from a record 10.99 million bpd in 2018.

U.S. crude futures traded below $55 per barrel on Friday, putting the contract on track to rise for the first time in three weeks as expectations of further stimulus by central banks helped to ease recession concerns.

Looking ahead, U.S. crude futures were trading around $54 a barrel for the balance of 2019 and $52 in calendar 2020.

U.S. financial services firm Cowen & Co this week said that projections from the exploration and production (E&P) companies it tracks point to a 5% decline in capital expenditures for drilling and completions in 2019 versus 2018.

Cowen said independent producers expect to spend about 11% less in 2019, while major oil companies plan to spend about 16% more.

In total, Cowen said all of the E&P companies it tracks that have reported plan to spend about $80.5 billion in 2019 versus $84.6 billion in 2018.

Year-to-date, the total number of oil and gas rigs active in the United States has averaged 1,004. Most rigs produce both oil and gas.

The number of U.S. gas rigs, meanwhile, fell four to 165, the least since April 2017.

Analysts at Simmons & Co, energy specialists at U.S. investment bank Piper Jaffray (PJR.SG), have forecast the average combined oil and gas rig count will slide from a four-year high of 1,032 in 2018 to 970 in 2019 and 955 in 2020 before rising to 997 in 2021.

That is the same as Simmons forecast since late July.

(Reporting by Scott DiSavino Editing by Marguerita Choy)

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