Oil rigs in U.S. drop by most in two years, Baker Hughes says

Oil rigs in U.S. drop by most in two years, Baker Hughes says

LYNN DOAN

HOUSTON (Bloomberg) -- U.S. oil drillers, facing the lowest crude prices in five years and escalating competition from suppliers abroad, idled the most rigs in almost two years this week.

Rigs targeting oil dropped by 29 to 1,546, the lowest level since June and the biggest decline since December 2012, Baker Hughes Inc. said. Those drilling for natural gas increased by two to 346, the Houston-based field services company said. The total count fell 27 to 1,893, the fewest since August.

The number of rigs targeting U.S. oil is down from a record 1,609 following a $50/bbl drop in global prices, threatening to slow the shale-drilling boom that’s propelled domestic production to the highest level in three decades. As OPEC resists calls to cut output, U.S. producers from ConocoPhillips to Oasis Petroleum Inc. have curbed spending. Chevron Corp. put its annual capital spending plan on hold until next year.

“Our capex will be lower,” Roger Jenkins, CEO of Murphy Oil Corp., an El Dorado, Arkansas-based exploration company, said during a presentation Dec. 10. “I think this idea of lowering capex 20-something percent is going to be pretty common in the industry.”

ConocoPhillips said Dec. 8 that the Houston-based company would cut its spending next year by about 20%, deferring investment in North American plays including the Permian basin of Texas and New Mexico and the Niobrara formation in Colorado. Oasis, an independent exploration and production company based in Houston, said Dec. 10 that it’s cutting 2015 spending 44% to focus on its core area in North Dakota.

Chevron Plans

Chevron, the second-largest U.S. energy producer, is still evaluating its capital plans and will probably release them early next year, company spokesman Kurt Glaubitz said by telephone Dec. 9. The company usually has its budget out in mid-December.

The Organization of Petroleum Exporting Countries, responsible for about 40% of the world’s oil supply, decided Nov. 27 to maintain its collective crude output target, resisting pressure for cuts to shrink a global glut. “Why should I cut production?” Saudi Arabia oil minister Ali Al-Naimi asked Dec. 10, while speaking to reporters as he attended United Nations global warming talks in Lima.

The international benchmark North Sea Brent oil and the U.S. counterpart West Texas Intermediate crude are both trading at their lowest levels since 2009. WTI for January delivery dropped to $57.97/bbl on the New York Mercantile Exchange on Dec. 12. The 2014 peak was $107.73.

Genscape Forecast

U.S. oil rigs will drop below 1,100 for the first time in three years, bottoming out at 1,073 in August, according to forecasts prepared by the Louisville, Kentucky-based Genscape.

While the U.S. rig count has dropped, domestic production continues to surge, with the yield from new wells in shale formations including North Dakota’s Bakken and Texas’s Eagle Ford projected to reach records next month, Energy Information Administration data show.

Domestic oil output climbed 35,000 bpd in the week ended Dec. 5 to 9.12 million, the highest level in weekly EIA data going back to 1983.

U.S. gas stockpiles dropped 51 Bcf last week to 3.359 trillion, according to the EIA. Supplies were 9.5% below the five-year average and 5.2% under year-earlier inventories.

Natural gas for January delivery increased 13.6 cents to $3.77 per million British thermal units on the Nymex, down 14% in the past year.