U.S. rig count at lowest mark since 1999

Chevron to withdraw from shallow Gulf of Mexico entirely

OIl producers keep retreating, with just 413 rigs drilling for crude as Chevron puts all its Gulf shelf acreage up for sale.

Oil producers continue to pull back from the land and sea, with more oil rigs mothballed and Gulf of Mexico acreage on the sale block.

The number of rigs looking for oil in the U.S. dropped by 26 this week, leaving just 413 rigs still seeking crude onshore and off, according to Baker Hughes data. Including natural gas rigs, the overall rig count of 514 rigs is at its lowest point since 1999. The combined oil and gas rig count in the U.S. will hit an all-time recorded low next week if the rig count again drops as much as it did this week.

“It’s pretty amazing that it’s back to where it was in the last century,” said Pavel Molchanov, energy analyst at Raymond James & Associates in Houston

Also Friday, Chevron Corp. confirmed it is planning to withdraw from the shallow Gulf of Mexico entirely, putting all of its Gulf shelf acreage up for sale.

Adding to the grim news for the industry, the U.S. benchmark for oil settled Friday at $29.64 a barrel, down $1.13 for the day. Friday represents the 12th trading day this year that oil settled below $30 a barrel. The low thus far is $26.21 per barrel on Feb. 11, the lowest since May 2003. Likewise, U.S. oil and gas inventories have both hit record highs this year.

“The U.S. is really taking it on the chin this year,” Molchanov said. But so is the rest of the producing world because no one thrives in a world of $30 oil, he said, not even Saudi Arabia.

Oil and gas companies are finalizing their 2016 planning and

pushing their austerity measures to the extreme with the understanding that things may get worse before they improve, Molchanov said.

That’s why the total rig count is approaching the 1999 low of 488 rigs, the lowest point in Baker Hughes’ recorded history. Another drop of 26 total rigs would tie the all-time low.

Molchanov expects the rig count to bottom out near midyear, but companies may shed at least an additional 100 more rigs before reaching that point. In the first two months of 2016 alone, drillers have mothballed 123 oil rigs. The natural gas rig count dropped by just one this week down to 101 rigs, which already is at a historic low.

Texas is still home to 46 percent of the nation’s operating rigs, but the biggest losses this week came from the Lone Star State. Seven rigs went dark in the Permian Basin, and the Eagle Ford shale lost another four rigs. The Permian and Eagle Ford, in that order, are still the most active plays in the country.

The oil rig count is now down nearly 75 percent from its peak of 1,609 in October 2014 before oil prices began plummeting.

The rig count in the Gulf, however, has remained unchanged of late.

But, as companies look to cut costs, Chevron hopes to unload all its shallow Gulf assets by the end of 2017, the company confirmed Friday. The Californiabased oil giant with a major Houston presence will instead focus on deep-water Gulf projects.

“Chevron is accelerating the sale of mature shelf properties and has begun marketing all shelf assets in the Gulf,” Chevron spokesman Cam Van Ast said in a prepared statement. “The divestments will begin in 2016 and are expected to be completed by the end of 2017.”

He said Chevron is targeting between $5 billion and $10 billion in asset sales globally by the close of 2017.

In the shallow Gulf, that means selling 27 oil and gas fields that produce 46,000 barrels of oil equivalent a day. Investment banking firm Tudor, Pickering, Holt & Co. predicted Chevron could collect more than $1 billion from potential sales.

Even with the price of oil hovering near $30 a barrel, crude production from the Gulf is still expected to hit record levels in 2017, the U.S. Energy Information Administration projects.

Because deep-water projects are costly and take years to come online, many expensive projects were authorized before oil prices began to plummet. In general, Gulf production is less sensitive to short-term crude pricing movement than onshore shale production.

The EIA projects Gulf production will average 1.63 million barrels per day this year and 1.79 million barrels a day in 2017, including hitting 1.91 million barrels in December 2017.

The previous high of more than 1.7 million barrels came in 2009 in advance of the 2010 drilling moratorium after the Deepwater Horizon tragedy.

The low price of oil is keeping most energy companies from approving new Gulf projects, but several are already in the works. The EIA is counting on additional oil coming from 14 new deep-water projects, including eight that came online last year.