A December to remember – the biggest US drilling gain in three decades
U.S. land drillers sent 2016 packing with a bang.
Since May, the drilling recovery has looked exceptionally strong on a percentage basis. The December trend looked exceptionally strong on an absolute basis, too, with 65 U.S. rigs returning to work.
December 2016 delivered the best absolute rig count increase of any December since 1982, and a rig today is worth at least two back then. The performance is noteworthy in part because December tends to be seasonally slow in the U.S. (holidays and budget exhaustion can send crews to the sidelines in years where there isn’t a sense of urgency).
In the chart below, we’ve plotted cumulative weekly rig count changes for the month of December. We captured the past few years as well as the two next best Decembers since the turn of the century for context.
1Q17 is going to feel downright frothy in U.S. light tight oil plays. It may seem early to say this, but we are actually becoming concerned about early cyclical overshoot during 1Q17. Specifically, crude markets may react negatively to surging U.S. oilfield activity sooner than we previously expected, perhaps as early as February/March 2017.
Even if oil prices do not immediately react, look for concerns about an overextended U.S. recovery to become commonplace early next year. Before that though, look for an assortment of positive 4Q pre-announcements from U.S. onshore service companies in January.
December’s stellar oilfield activity trend line almost certainly pushed results above prior expectations for U.S. leveraged service/drilling companies. While analysts were on holiday, roughnecks were busy turning to the right. Expectations will be revised as the number crunchers get back to work in the new year.
This December is one to remember.
This excerpt is from Infill Thinking’s final weekly rig count update of December.