For the week that ended Jan. 27, the Baker Hughes rig count topped 700 active units with a total of 712 rigs. The last time the rig count was at 700 rigs was the week ending Dec. 23, 2015, as the count was moving steadily downward. This year’s rising rig count gives hope to operators and service companies that the financial situation is looking up.
“E&P spending surveys currently indicate that 2017 North American E&P investments will increase by around 30%, led by the Permian Basin, which should lead to both higher activity and a long-overdue recovery in service industry pricing,” said Schlumberger Chairman and CEO Paal Kibsgaard during the company’s 2016 annual and first-quarter 2017 reports. “We expect the 2017 recovery in the international markets to start off more slowly driven by the economic reality facing the E&P industry.”
However, there is a big “if” for the turnaround to continue. And that is “if” OPEC producers keep the promise to cut supply and U.S. shale operators don’t ramp production up too rapidly again.
In an issue brief from the Center for Energy Studies at the Baker Institute for Public Policy, the question was asked, “How fast can U.S. shale producers scale up their activity levels if WTI [West Texas Intermediate] crude prices rise and stabilize in the $60/bbl range?”
The pace at which shale responds to a higher price could become as much a function of logistics and oilfield service capabilities as it is geology and mineral rights, the brief stated.
“Despite the positive sentiment surrounding the North American land market, it is important to remember that our world is still a tale of two cycles. The North American market appears to have rounded the corner, but the international downward cycle is still playing out,” explained Dave Lesar, Halliburton chairman and CEO, on the company’s Jan. 23 quarterly call.
Martin Craighead, Baker Hughes chairman and CEO, said on the company’s Jan. 26 quarterly call, “Looking ahead for the first half of 2017, we expect onshore revenue in North America to increase as our customers ramp up activity, with service pricing improving but limited by overcapacity. In offshore markets, particularly deep water, activity declines are expected to be more severe.”
Helmerich & Payne Inc. President and CEO John Lindsay stated in the company’s Jan. 26 quarterly call, “The outlook has been improving in the U.S. land drilling market, resulting in a significant increase in the company’s activity levels and market share over the last few months. Spot pricing remains low, although we continue to see some pricing improvements for high-quality high-performing AC drive rigs.”
Although optimism is beginning to increase, there is still a healthy skepticism not to ramp up too quickly.
Contact the author, Scott Weeden, at slweeden@hartenergy.com.
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