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Permian drops four rigs

The Permian Basin lost four drilling rigs during the past week, continuing a trend of soft decline that supported expectations that the most dramatic reductions of drilling activity are over.

The latest drop left 233 rigs running in the Permian Basin, which is fewer than half of the amount running in the region at the end of 2014, according to Baker Hughes. Nationally, the oil and gas rig count dropped six rigs from last week to a total 888 (Oil rigs actually dropped by eight, but rigs targeting gas increased by two).

“If you look at just the slope of everything we sure seem to be coming to a bottom,” said Allen Gilmer, CEO of the analytics firm DrillingInfo in Austin. “For the Permian Basin, we’ve not been that bad. We’ve been flat.”

Gilmer’s DrillingInfo produces its own rig count that differs from Baker Hughes’.

DrillingInfo predicted a rig count bottom in the 220-range. The company does not rely on the widely-watched Baker Hughes weekly rig count, instead forming their own every day. On Friday, the firm reported 223 rigs active in the region (including four categorized as directional but not horizontal and one unknown.

The Permian’s horizontal rig count continued to drop this week to 169 rigs, or nine fewer than May 1. But producers were adding vertical rigs — four since May 1.

“That one tells you that some of the smaller guys are getting back in there,” Gilmer said. That is because vertical wells are often less expensive and the rigs are contracted on shorter terms, making vertical drilling popular among smaller oil companies.

In related news, Permian drops one rig amid renewed optimism in drilling.

Some of the region’s biggest oil companies announced plans in recent weeks to pick up drilling again if prices hold steady after increasing roughly 36 percent since mid-March. The regional Plains-West Texas Intermediate benchmark ended at $56.25 per barrel on Friday.

Pioneer Natural Resources executives said on May 6 they intend to start adding two rigs per month beginning in July, depending on price stability and other factors. That announcement came days after executives of another shale giant, EOG Resources, reported plans to start drilling more if prices stabilize at about $65 a barrel.

On Wednesday, executives of Parsely Energy, a public company that drills only in the Permian, became the latest to announce plans to speed up their drilling program and produce more crude than expected earlier this year.

“The plan was to average two wells in the first half of the year and then run four rigs starting in July for the duration of the year, but also to maintain the flexibility to adjust the plan as desired,” said CEO Bryan Sheffield in a Wednesday conference call with investors. “With cost down, oil prices up, and our wells performing so well, we now plan to ramp back up the four rigs at the beginning of June, one month earlier than anticipated.”

But analysts caution that the factors that halved oil prices since the peak last June remain in place: chiefly, an oversupply of crude on the global market largely created by the shale boom. The Organization of Petroleum Exporting Companies shows no signs of backing off a decision not to cut production quotas and shore up prices.

And Saudi Arabia is drilling at record levels.

Houston analyst firm Wood Mackenzie does not project a production decline in the Permian Basin but does see price volatility in the months to come before traders and oil companies become comfortable enough to support more oil and gas activity.

“You tread with caution on the recovery,” Wood Mackenzie analyst Ben Shattuck said. “While there are some that are well positioned to move back some rigs, I think a lot will be slower to phase them in. . . You don’t necessarily want to pick them up to lay them back down again.”

 

This article was written by Corey Paul from Odessa American, Texas and was legally licensed through the NewsCred publisher network.

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