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A few weeks ago North Dakota had 174 active drilling rigs, an all-time high. Since then there has been a steady slide. Today, the number of active drilling rigs is down to 168.
It is not unusual for a fluctuation in rig count. But with better weather, higher oil prices, and smaller companies having added (or planned to have added) more rigs, it is surprising that the slide has occurred at all. One would have expected a rise, not a drop.
Most likely this is just random fluctuation and the number of active rigs will go up again any day now.
It's possible some rigs have moved across the border in to Montana. It's possible that some companies are looking at the Niobrara in Colorado and Wyoming, and even the Eagle Ford in south Texas.
Drilling these wells is not inexpensive. The wells get even more expensive when the price of oil goes up, and the price of wells get more expensive when there is more competition for support services, especially fracking. Add to this that recent wells have had lower IPs, which means that it will take longer to pay off these wells. Operators depend on cash flow to fund future operations.
Is the decline in the number of drilling rigs a canary in the coal mine? Are some companies having a cash flow problem funding their announced CAPEX? Or is it simply random fluctuation? If it's the former we could see additional merger activity, or even buyouts. Publicly traded companies may issue more shares to raise cash; privately held companies may sell out.
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See first comment below: I may be completely off base on this posting. More than likely it's purely seasonal. Road restrictions in the spring limit truck traffic on muddy roads. I will leave the post up, but it's probably completely wrong.
Remember to factor in load restrictions on the roads. When the frost goes out roads get soft. Especially less traveled roads. Like minor highways and rural roads. Farm to market type roads. Heavy oil field traffic can be very destructive during that period of time. When the frost is out, things dry up a little, the soil under the road will firm up, and the load restrictions will come off. I would anticipate a surge in oil hauling, fracing, rig mobing, etc. during that time.
ReplyDeleteFollow links:
http://www.dot.nd.gov/travel-info/downloads/loadrestrictionsprev-printable.pdf
http://www.dot.nd.gov/travel-info/downloads/loadrestrictions-printable.pdf
That would make the most sense. If accurate, we should eventually see a surge in rig activity.
ReplyDeleteIf it does have to do with load restrictions, it is amazing how much even simple things can affect rig activity.
I wonder how much the back log in fracking has to do with it as well. I mean does it make sense to make a well that doesn't produce until 6 months to a year later because of how long it takes to get a fracking crew in. I wonder how much of a monopoly these places have in ND right now, and if they aren't bringing more crews in because they can get more buck...?
ReplyDeleteRig count down to 168 is very similar to "oil falling to $104" :-)
ReplyDeleteBB
All you have to do is go to Williston and you will see why they can't bring in more frack crews. I've tried to paint that picture but have obviously failed.
ReplyDeleteThere is simply no place to put any more people. Companies are desperately trying to find more places to lodge people for support services.
In addition, there are only so many experienced people available, and it's not just the Bakken. We are competing with natural gas industry which is fracking a lot more wells in Pennsylvania, Texas, Oklahoma, etc.
HAL has even gone to 24/7 crews -- they frack 24 hours around the clock. No, this is not a monopoly. The reason it is not a monopoly is because there are least three companies fracking: SLB, HAL, and Sanjel. In addition, individual operators will hire their own dedicated frack crews.
A backlog in fracking exists, but it is not due to "monopoly" to raise prices.
With regard to comment about rig count dropping to 168 similar to oil falling to $104.
ReplyDeletePoint well taken.
Except that one well generates a huge amount of cash flow in the Bakken; $7 million just to get started. 6 rigs x $7 million = $42 million not get invested each month "we" are down six wells. $42 million in western North Dakota (9 counties) is huge.
First month production from a well, 12,000 barrels x 6 rigs = 72,000 barrels x $75 = $5 million just at the wellhead.
For an individual, it can be quite significant. I get many folks writing me wondering when operators will get to their leases. So, when a well is taken off-line, and it was scheduled to move to your site next, it is a real "downer."
So, your point is well taken.
Oh, one last thing:
The AP story/link is now changed, but I think the change was about 60 cents. 60 cents/$105 = 0.05%.
6/174 = 3.4%
A factor of 100.
Oil is back up to $104.60 following "the speech" and the market is up almost 100 points.