The oil boom is not dead after all.
For the first time in five months, a rig in the Williston Basin, where North Dakota’s Bakken shale formation lies, sputtered back to life and started drilling for crude once again. And then one returned to the Permian Basin, the nation’s biggest oil play, field services contractor Baker Hughes Inc said on Friday.
Shale explorers, including EOG Resources Inc and Pioneer Natural Resources Co, say they are preparing to bounce back from the deepest and most prolonged slowdown in US oil drilling on record. The country has lost more than half its rigs since October last year, casualties of a 49 percent slide in crude prices during the last half of last year. Futures rallied above US$60 a barrel last week, and a sudden return to oil fields would threaten to end this fragile recovery.
“You’re inviting a lot of pent-up supply to come back into the market — not only do you have people drilling again, but you have this fracklog of over 4,000 uncompleted wells,” said Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London. “And then we’re in a situation where the market could easily go back into the mid-US$50s.”
While rigs are returning to some fields, the total US count has continued to decline, falling 11 last week to a four-year low on Friday. The drilling slowdown will not reach a real bottom for about another month, said James Williams, president of energy consultant WTRG Economics.
“This is an indicator that we’re nearing the end of the bust,” he said. “What we’re going to see now are mixed signals from the different basins as we near the bottom of the cycle.”
Carrizo Oil & Gas Inc, Devon Energy Corp and Chesapeake Energy Corp all lifted their full-year production outlooks last week.
EOG said on Tuesday last week that it plans to increase drilling as soon as crude stabilizes around US$65 a barrel, while Pioneer has said it is preparing to deploy more rigs as soon as July.
Morgan Stanley said underlying data show drilling is already picking up in some counties within Texas’s Eagle Ford shale formation and the Permian Basin of Texas and New Mexico.
“Prices are triggering activity that could undermine the US recovery, especially in 2016,” Morgan Stanley analysts including Adam Longson said in an April 27 research note.
The US benchmark West Texas Intermediate oil for delivery next month rose US$0.45 on Friday to settle at US$59.39 a barrel on the New York Mercantile Exchange. Prices advanced 25 percent last month alone, the biggest monthly gain since May 2009.
The US rig count may recover to 1,200 to 1,300 should prices rally past US$70 a barrel, said Allen Gilmer, chief executive officer of the Austin-based energy data provider Drillinginfo. The total rose for three straight days in late April, he said.
“The service companies have responded very quickly in regards to dropping prices, and it has become very attractive, especially for companies with hedged positions, to come back right now before those hedges fall off,” Gilmer said. “We’re a few weeks from the bottom now. You’ll start seeing it build up.”
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