Oil field math
The rig count has long had a close connection to crude production. But no more.
Years ago, it wasn’t too hard to predict how many new barrels of crude the energy industry could harvest over a stretch of time. Abig part of it was just counting the number of drilling rigs in the oil patch. Simple enough.
But times change. During the U.S. energy boom, shale drillers pumped oil hand over fist using faster, soupedup rigs that could move between drilling sites without being disassembled.
Baker Hughes has kept track of the nation’s active rig fleet for decades, but suddenly the industry’s go-to weekly drilling report became something of a relic, as far as oil production math goes.
Just compare the trajectory of U.S. oil and gas rigs with domestic energy production. After crude prices collapsed, the rig count dropped nearly 80 percent through the oil bust. By next year, drillers will have cut $150 billion in spending across the continental United States, energy research firm Wood Mackenzie said in recent report.
That’s by far the biggest spending cut in any region in the world. But domestic crude production has fallen by just 8 percent from its peak in April 2015, which was six months after the rig count began dropping.
“People expected that overall tight oil production would collapse when companies stopped drilling,” said Jeanie Oudin, a researcher at energy research firm Wood Mackenzie. “However, it hasn’t collapsed. It’s only declined.”
The rig count’s plunge is one big reason traders pushed U.S. crude prices last year from the mid-$40 a barrel range to nearly $60 a barrel in June, before shale oil production proved more resilient than expected and looming economic problems caused markets to come crashing back down in July.
Now the rig count is almost, but not entirely, irrelevant to calculating the nation’s future oil production. U.S. producers drilled thousands of wells but left them untapped, so they wouldn’t have to send rigs back to the field to bring hundreds of thousands of barrels per day into production. Also, domestic oil wells have become more productive.
When the industry’s drilling activity recovers, more efficient oil companies will need fewer than half the number of rigs used at the height of the oil boom to keep the nation’s fleet of hydraulic fracturing pumps busy, Halliburton CEO Dave Lesar said during a conference call with investors last week.
“In the next North American rig cycle, 900 is the new 2,000,” Lesar said.
Of course, that’s not great news for oil workers in Texas. The state’s energy workforce has been reduced by a third since crude prices began their plunge two years ago, and layoffs haven’t ended yet. Halliburton cut 5,000 jobs in the second quarter.
Fewer rigs mean fewer roustabouts and field engineers to run the operation. But during Halliburton’s conference call, company president Jeff Miller reminded investors that in 2014, Halliburton hired 21,000 people.
“So, we know how to do that,“Miller said, “and we know how to make those people effective.”
“In the next North American rig cycle, 900 is the new 2,000.”
Halliburton CEO Dave Lesar