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U.S. shale oil and gas sector sees resurgence as rig count jumps

U.S. shale oil and gas sector sees resurgence as rig count jumps

Jan 24, 2017
3 min read
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The number of rigs drilling for oil and gas in the United States has recorded the largest one-week increase for over five years, confirming a rapid upturn is now underway.

The number of active oil and gas rigs jumped by 35 to 694 last week, according to oilfield services company Baker Hughes.

Some of the increase may have been due to catch-up effects since the rig count unexpectedly declined by six the previous week. The average across the two weeks was in line with the recent trend, according to Reuters calculations. 

The total number of rigs drilling for oil and gas has risen by 290, or more than 70 percent, from its cyclical low point at the end of May 2016.

The number of rigs targeting oil-bearing formations has rise by 235, or nearly 75 percent, from the cycle low at end-May.

Rigs targeting primarily gas-bearing formations have also rebounded by 61, or 75 percent, from a own low in late August.

The number of rigs drilling for oil has risen year-on-year for the first time since January 2015, while the number of gas rigs is up year-on-year for the first time since February 2011.

The rising rig count should ensure U.S. oil and gas production starts to increase again in 2017.

The production increase is likely to be even greater than the raw rig count suggests because drillers have become increasingly efficient.

Rigs are boring faster than before and drilling longer horizontal sections to recover more oil and gas from each well.

Massive fracturing operations employing more water, more sand and more horsepower for pressure pumping are boosting initial production and ultimate recovery rates.

But the increase in output threatens to snuff out the rise in oil and gas prices which caused the drilling rebound in the first place.

In the U.S. gas market, the sustained increase in drilling will stem the decline in production and arrest the rapid drawdown in gas stocks evident in 2016.

And the big increase in oil drilling will also add to the supply of gas since most oil wells will also produce some associated gas.

The number of active rigs seems set to increase even further in the next few months as shale producers shift from a focus on conserving cash to growing output.

Shale producers are planning a big increase in their drilling budgets for 2017, according to an analysis of capital plans published by the Wall Street Journal. 

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