Fewer Rigs, Bigger Payoff: US Oil Production Continues to Climb Even as Rig Count Drops

The current consolidation trend amongst E&Ps have companies optimizing operations and capital budgets—and with that comes a drop in rig counts in the U.S.

The U.S. rig count has seen a significant decrease, dropping from approximately 780 rigs at the start of 2023 to around 620 rigs currently.

Yet, even with the decline in the rig count, oil and gas production continues to climb.

Many E&Ps are engaging in mergers and asset transactions, leading to a streamlined approach to capital spending.

“One capital budget plus the second doesn’t equal two,” James West, senior managing director at Evercore ISI, told Hart Energy. “So they optimize their spend and they drop rigs.”

The ongoing weakness in natural gas prices has also played a critical role, West said, with companies opting to reduce the number of gas rigs in response to a market that may not recover until late 2025. Despite initial expectations for an earlier rebound due to new LNG export facilities, current price pressures are keeping many operators from drilling new wells.

“Natural gas has been weak. We’ve dropped a lot of gas rigs. There were some expectations that we might get a recovery earlier in this next year, but I think now that’s probably pushed out to the end of 2025 with all the LNG export facilities that will come online,” he said.

Additionally, operational efficiencies have allowed companies such as Liberty Energy to achieve more with fewer resources.

“Efficiencies were aided by a mix shift towards larger producers benefiting from consolidation and partnership with top-tier frac service providers. Industry-wide frac efficiency is at its highest levels,” Liberty CEO Chris Wright said during the company’s Oct. 17 earnings call.

And as the rig count lessens, Wright said investments in “leading-edge” service technologies are also needed to maintain efficiency gains and further support the increasing complexity of E&P needs.

 During Nabors Industries’ Oct. 23 earnings call, CEO Tony Petrello said a third-party rig ran Nabors Drilling Solutions’ (NDS) SmartCRUISE AutoDriller, REVit’s stick-slip mitigation and SmartDRILL process automation.

As a result, the operator was able to drill a record 3-mile lateral in the Uinta Basin, Petrello said.

“Another operator drilled the three fastest wells in the Powder River Basin. Using NDS’ SmartDRILL on a third-party rig, this project illustrates the repeatability of the NDS value creation.”

But discipline remains a core theme for E&Ps, even amid relatively favorable oil prices. Many operators are hesitating to ramp up drilling, particularly given the potential influence of OPEC on the market.

“You don’t want to anger them by taking too much of their market share,” Evercore’s West said.

Liberty is among companies making a conscious effort to maintain financial discipline.

“We remain disciplined in investing in asset deployment as we seek to drive superior long-term financial results. Over the last two years, we have maintained a roughly flat deployed fleet count,” Wright said.

Near-term reductions in customer activity and market pressures have pushed Liberty to temporarily reduce its deployed fleet count, Wright said.

And West predicts a slow start to 2025 operations as budget exhaustion sets in toward the end of 2024, leading companies to halt operations until new capital becomes available. While production growth in the U.S. is expected to continue, it is unlikely to reach the explosive rates seen prior to the pandemic, West said.

 “We’re in a much less cyclical business that can grow a little, not a lot.”

Elevated uncertainty in the energy sector has further left operators reluctant to accelerate completions activity as 2025 approaches.

“We now expect a low-double-digit percentage reduction in Q4 activity, a bit more than the typical Q4 softening,” Wright said. However, he believes that “completions activity likely increases in early 2025 to support flattish E&P oil and gas production targets.”

One certainty: growing demand

Despite the upcoming presidential election putting variability on the rig market, historical trends suggest U.S. oil production is largely driven by state-level regulations and market dynamics rather than federal leadership.

RELATED

Harris or Trump? Majors’ CEOs Say ‘Nothing's Going to Change’

Regardless of the outcome, one thing is clear: energy demand is growing.

“The period that we’re in right now is more of an energy evolution than a transition. The demand [is] growing fairly rapidly—at least for electricity and power—and data centers and AI are only going to supercharge some of that demand growth,” West said. “It seems to me that while renewables will take a bigger piece of the pie, the pie is just going to keep growing.”

Smaller companies are adapting to this evolving environment, with many enhancing operational efficiencies, divesting non-core assets and improving cost structures.

 “Fewer rigs and crews typically mean that the ones that survive are the better crews,” West said.

That may bring potential opportunities for increased activity as the market matures, he added.