More drilling rigs were parked in US oilfields last week as the industry begins to turn its attention to the backlog of almost 4,000 wells already drilled and waiting to be fracked.
Rigs targeting oil in the US fell by 20 to 516, after more than 130 were idled since August, Baker Hughes Inc said on its website on Friday. It was the seventh time in eight weeks that oil rigs declined, and extends a five-year low. Natural gas rigs were trimmed 14 to 148, bringing the total down 34 to 664. The Permian Basin in West Texas, the most active US oil play, led the week’s declines, with nine rigs dropped and 200 oil rigs remaining.
The rig count is responding to the latest fall in crude prices from the mid-$40s to near $30 a barrel, Matt Marietta, an analyst at Stephens Inc in Houston, said on Friday in a phone interview. “This is probably foreshadowing more activity declines.”
Finishing the wells instead of drilling new ones brings production online at significantly lower cost than starting from scratch, Andrew Cosgrove, an analyst at Bloomberg Intelligence, said in a telephone interview. The drilling work accounts for roughly a third of the total cost for an average onshore well.
For the unfinished wells, “costs for the drilling portion are essentially sunk,” Cosgrove said.
Oil drillers have idled more than half the country’s rigs in the past year as the world’s largest crude suppliers battle for market share. The crude being pumped out of US shale formations helped create a global glut that’s pushed prices down by more than 60% since June 2014.
Despite the cutbacks, US production has remained stubbornly high as new techniques that increase efficiency keep the oil flowing. US production rose by 17,000 barrels last week to 9.18mn bpd, according to weekly Energy Information Administration data. It was the fifth time in six weeks that US output climbed.
“It feels like we’re getting to the point where I wouldn’t be surprised to see domestic E&P companies begin to halt operations,” Marietta said. “The declines are once again re-accelerating into the start of the new year.”