Update On Rig Count; Update On SCOOP (Harold Hamm/CLR) -- February 10, 2015

Drop In Rig Count Gives Industry "Hope"

 

Musings over at Rigzone:

Another week and another huge drop in the Baker Hughes oil-directed drilling rig count. The speed with which the rig count is dropping has encouraged forecasters to translate the decline into an immediate fall in oil output.

The focus of analysts has been on the oil rig decline since the world is absorbed with determining when either Saudi Arabia cuts its production to boost global oil prices from current levels or the American shale industry cuts back drilling sufficiently that the natural decline rate of shale wells eliminates the existing oil surplus.

The chart (at the link) of the count of active oil drilling rigs since the turn of the century shows an almost vertical decline in recent weeks. The angle of this oil rig decline is sharper than occurred in the 2008-2009.

On the surface, this picture would support the view of a rapid decline in new oil production. Below the surface there may be some variances in the pace of decline of the various drilling rig types that could moderate the optimism of a quick production reaction.

Between November 26, 2014, and last week, the industry lost rigs drilling 59 directional wells, 283 horizontal wells and 119 vertical wells. On a percentage basis, the declines were 30.4%, 20.6% and 33.8%, respectively.

What we take away from these figures is that we are on the cusp of the decline in oil production growth. Vertical rigs are often used to deep the top section of horizontal wells with the main portion drilled by larger rigs (horizontal).

Efforts to improve drilling efficiencies and lower well costs have led to this rig specialization. The recent pattern in the rig declines suggests that pad drilling is only beginning to be impacted, which is good news for the optimists who believe this will be a short industry downturn. So far, the industry has laid down 461 rigs since Thanksgiving Day week. Oil rigs will continue to fall until the industry has shut down enough rigs to truly impact oil production growth, and unfortunately that may take a while.

We would not be surprised to see another 300+ rigs shut down before production starts to slow. We will continue to watch the nature of the wells being drilled. We also need to examine where the rigs are falling to further gauge how fast oil production may fall and oil prices respond.

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SCOOP

Wood Mackenzie in Rigzone is reporting:

Even in the current price environment, the best producing parts of the South-Central Oklahoma Oil Province (SCOOP) are on par with the Eagle Ford and Bakken according to Wood Mackenzie’s latest key play analysis.

"The region will see drawbacks, rig counts are down in the near-term but production won’t fall off by much and we expect it to bounce back quickly in 2016," said Brandon Mikael, Analyst US Lower 48 Upstream.

"It's still one of the most exciting growth areas in the Lower 48 because of the stacked pay potential." Wood Mackenzie's analysis breaks the SCOOP, STACK, and Cana Woodford plays down into nine sub-play areas that span the Anadarko and Ardmore Basins of the Mid-Continent.

"The area has some of the largest producing wells in the Lower 48, bigger than the Permian and Bakken and comparable to the best parts of the Eagle Ford," explained Mikael. Currently, oil breakevens are lowest in the SCOOP Core where Springer and Woodford wells breakeven at WTI prices of $41/bbl and $47/bbl at our long-term Henry Hub price assumption of $4.12/mcf.

Much more at the link. The article will be archived at the source.