US Drilling Sees The Biggest 2-Week Rig Drop Since The 1980s
Over the past two weeks, the US land rig count has fallen 171 rigs. That’s more than any two-week period during the downturns of 2008, 2001, or 1998.
In just the past 3 months, the rig count has fallen 25%, about 467 rigs. We expect another 333 rigs to be released before drilling activity begins to level off.
The rig count will likely begin to stabilize as the second half of the year gets underway – collapses like this generally take 6-9 months to play out. Where it goes from there will largely depend on the direction of crude oil prices between now and then. A drilling re-calibration for $50 oil should largely be complete by early 2H15.
The US land rig count fell 85 rigs this week. Horizontal oil drilling took another massive hit – down 78 rigs following last week’s 72 rig drop. After holding up relatively well in November and December, horizontal oil activity is tumbling now (down 272 rigs or 23% ytd). The Canadian rig count fell as well, and drilling activity in North America is tracking 555 rigs below year ago levels.
The downturn is now well underway and is likely to continue for the next several months as operators right size their rig fleets. Last week we revised our forecast to an 800 rig drop in the US market.
A regional summary of rig counts by key basins is below. With 417 rigs working, the Permian is still the most active basin, but it is down 148 rigs from the peak. The Eagle Ford, with 168 rigs running, is the second most active basin, and it is down 41 rigs so far. With 137 rigs running, the Bakken is down 51 rigs from peak, the hardest hit basin on a percentage basis so far.
The rig count in Canada stands at 381 units, down 13 rigs this week and tracking about 240 rigs below year ago levels. This is shaping up to be the worst winter drilling season (typically the busy season in Canada) in years. The chart below says it all.
Predictive value can be found in charting rolling average weekly rig count changes. Normalizing week-to-week noise, this exercise exposes whether up or down rig count trends are intensifying, weakening, or inflecting. Below are three charts we will be watching closely for directional clues in the weeks ahead. These charts capture the collapse in drilling demand.