The oil and gas industry in the United States has hit a significant speed bump, as evidenced by a substantial drop in the weekly oil and gas rig count, an early sign of future output. According to a report by Baker Hughes, a leading energy services company, the number of operational rigs fell by seven to 748 in the week leading up to May 5, marking the most substantial weekly decline since February.
Weekly Drop in Oil and Gas Rigs
The recent week observed a three-rig drop in oil rigs, and a four-rig drop in gas rigs, the biggest declines since March and February, respectively. Despite the decrease, the total count remains 43 rigs or 6% higher than this time last year, offering some optimism amidst the recent downturn. The reason for this decline can be attributed to several factors that are currently impacting the industry.
Impact of Declining Oil and Gas Prices
Oil and gas prices have been on a downward trajectory, with U.S. oil futures down by approximately 11% this year, after a gain of around 7% in 2022. U.S. gas futures have plummeted even more dramatically, decreasing about 52% so far this year following a rise of about 20% last year. The knock-on effect of this price drop has been felt in the number of active rigs, particularly in the Haynesville basin, which has experienced its lowest activity level since March 2022.
Production Growth Set to Decelerate
The U.S. oil and gas production witnessed a significant boom in the first two months of 2023, a delayed reaction to the high prices and drilling upturn that defined much of the previous year, prompted by Russia’s invasion of Ukraine. However, this growth trend appears to be on the cusp of a major slowdown, primarily due to the slump in prices curtailing new drilling and well completions. The impact of this shift is expected to become increasingly evident by the fourth quarter of 2023.
Industry Reaction to the Price Slump
In response to the price slump, several companies such as Chesapeake Energy Corp, EOG Resources, and APA Corp have announced potential delays in well completions or reductions in drilling. However, not all industry reactions have been negative. Shale producer Diamondback Energy noted that rig prices are falling and steel costs are projected to decline by about $20-$25 per foot, indicating that the inflationary pressures that have burdened the oilfield in the past year may be easing.
Conclusion
The recent decrease in the weekly oil and gas rig count in the U.S. is a significant development, indicating a potential slowdown in the industry’s output. As the industry grapples with falling oil and gas prices, the strategies adopted by companies will play a pivotal role in shaping the future landscape of the U.S. oil and gas sector.