U.S. oil rigs decline most in two decades, Baker Hughes says

U.S. oil rigs decline most in two decades, Baker Hughes says

LYNN DOAN

HOUSTON (Bloomberg) -- U.S. drillers idled rigs seeking oil this week as an expanding glut of supply in the global market pushed crude prices below $50/bbl for the first time in more than five years.

Rigs seeking U.S. oil declined by 61 to 1,421, Baker Hughes Inc. said on its website. It was the largest drop in rigs since February 1991. Those drilling for natural gas rose by one to 329, and miscellaneous rigs dropped by one to zero. The total fell 61 to 1,750.

The price of U.S. benchmark West Texas Intermediate oil has plunged by more than half since June, imperiling a shale boom that has brought the nation closer to energy independence than it has been in almost three decades. Facing escalating competition from the Organization of Petroleum Exporting Countries and the rest of the world’s suppliers, U.S. drillers laid down the most rigs last quarter since 2009.

“Very little works at $50 WTI,” R.T. Dukes, an upstream analyst at Wood Mackenzie Ltd., said by telephone from Houston. “It’s not that nothing works, but very little works. Most of the U.S. is under water.”

West Texas Intermediate for February delivery fell $1.04 to $47.75/bbl on the New York Mercantile Exchange at 1:17 p.m. East Coast time on Jan. 9, down 48% in the past year and 56% from the peak in June. Brent, the international benchmark, dropped $1.46 to $49.50 on the London-based ICE Futures Europe Exchange.

Contract drillers Helmerich & Payne Inc. and Pioneer Energy Services Corp. both said this week that they’ve had clients pay early-termination fees to end agreements for rigs. Helmerich & Payne said in a presentation Jan. 7 that 40 to 50 of its FlexRigs will be idled in the next 30 days.

California Layoffs

Ensign Energy Services Inc. told California regulators last month that it was laying off as many as 700 workers after an “early and unexpected termination” of drilling contracts.

Exploration and production companies will cut their 2015 capital spending by 25 to 30% in North America, Evercore ISI analysts including James West in New York said in an outlook Jan. 6. With oil below $60/bbl, U.S. production is at risk of dropping after six straight years of gains, the report shows.

“Lower commodity prices put marginal barrels at risk, even superior risk-adjusted U.S. shale oil,” West said.

OPEC, responsible for 40% of the world’s oil supply, has resisted calls to cut output since deciding in November to maintain a collective target. United Arab Emirates won’t curb production, no matter how low prices fall, Yousef Al Otaiba, the nation’s ambassador to the U.S., said at a Bloomberg Government lunch in Washington.

Saudi Output

Saudi Arabia Oil Minister Ali Al-Naimi similarly said at a conference last month that the country won’t cut its own production while adding that producers outside of OPEC are welcome to do so.

The slide in rigs targeting U.S. oil has yet to put a dent in the country’s oil production, which climbed 11,000 bpd in the week ended Jan. 2 to 9.13 million, Energy Information Administration data show. Output reached a record 9.14 million in December, boosted by horizontal drilling that has proven to yield more oil from wells.

U.S. gas inventories in the lower 48 states, meanwhile, totaled 3.089 Tcf last week, a 2.1% deficit to the five-year average. Supplies were 8.8% above year-earlier levels.

Natural gas for February delivery rose 0.8 cent to $2.935 per million British thermal units on the Nymex, down 27% in the past year.