a bit on the latest oil & gas news, with a focus on fracking...
there were a number of stories indicating a continuing pullback by oil field operators last week...probably the most notable of those was the announcement by Schlumberger, the world’s largest oilfield-services company, that it will cut 9,000 jobs, which is roughly 8% of their worldwide workforce...their biggest competitor, Halliburton, also announced it intended payroll cuts in Houston, but it didn't specify how many would be laid off...in the tar sands, Shell started the week by announcing that they'd be cutting up to 300 jobs at their Athabasca Oil Sands Project's mining operations, but the big job cut there didnt come till midweek, when Suncor, the single largest tar-sands producer (formed from the merger of Sunoco & Petro Canada), announced that they’d be cutting 1000 jobs from their tar sands mining projects, and reducing capital spending on their MacKay River oilsands project in northeastern Alberta and their White Rose development off Newfoundland by $1 billion... their announcement followed one on Monday by Canadian Natural Resources, their largest domestic competitor, that they would slash their 2015 budget by 28%...and Laricina Energy, operating in the Canadian tar sands on $1.3 billion in equity financing and $150 million in four-year notes, is now unable to get further financing, is in default on its notes, and warns that “may result in the inability for the Company to operate as a going concern.” ..among US operators, Helmerich & Payne, a giant contract drilling services provider in Texas, reported their idle rig count had increased from 15 to 26 in over the past month, and expected another 40 to 50 of their rigs to become idle over the next 30 days ..elsewhere, Shell has scrapped plans for a $6.5 billion petrochemicals project with Qatar Petroleum, citing 'the current economic climate prevailing in the energy industry.”...in a research note, Goldman Sachs estimated that up to $2 trillion in investments, including $930 billion in shale developments, are at risk of being scrapped due to low oil prices, which they expect to trade at $41 a barrel over the next 3 months...
the most visible evidence of a pullback continues to be from the weekly rig count, published Friday by Baker Hughes...they reported that as of the week ending January 16th, 1,676 oil and gas drilling rigs were operating in the US, a drop of 74 from the 1750 rigs operating on January 9th, the largest one week drop in 6 years...oil rigs fell by 55 to 1366, while gas rigs were down 19 to 310...the total of 1,676 is 101 less than last year's 1777 rigs, leaving us with the lowest number of rigs operating since October 2012...Canadian rigs increased by 74 to 440, apparently as some are still being restarted after their holiday shutdown, while the Canadian count was still 125 less than a year ago...the international rig count was at 1313, down 11 from the last count and down 22 from a year earlier...and speaking of international rigs, one chart of interest that i came across in a Zero Hedge article about how the Saudis, the Emirates, and Kuwait were increasing their production is included below...oil rig counts since 1997 for both Saudi Arabia and the US are included, with the Saudis in green and the US in red, and with the blue box highlighting this year's changes...note that there are two scales, such that both counts can be included on one graph; the Saudi count shows they're now up to 115 rigs, from roughly 80 at the beginning of the year. the US oil rig count, as of January 9, was down to 1421, as it's fallen since November..here's a few takeaways: the Saudis are able to maintain production equivalent to that of the US with only 8% of the rigs we're using and hence that much less capital expenditure...and second, notice that the Saudis started increasing their rig count early in 2014...that certainly suggests that they planned their strategic attack on high-priced North American oil production well in advance of the OPEC Thanksgiving meeting..
Saudi vs US rig count:
the Wall Street Journal carried a story suggesting that because the production of oil had increased by 2.2% in December despite the dropping rig count, the industry was somehow getting more out of each well despite the $50 dollar oil prices...let's remember that the oil rig count was at it's highest in the 3 months just before Thanksgiving, before OPEC announced its intent to lower prices, and that the real drop in the rig count didn't take hold until the 2nd week in December...so it's only logical that those wells that were being drilled in the fall just began to come into production in November, and likely reached their peak production during December....since wells already extant will likely keep producing, the declining rig count of the past month will not likely show up as a decrease in production for another 3 months, when the number of new wells producing at their peak is reduced, and the effects of rapid depletion of shale patch wells kick in...that the US produced 9.19mm barrels/day last week - the most since records began in 1983, only means that the oil glut will continue for quite some time, keeping prices depressed, until such time as it eventually drives the marginal producers out of business...