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Onshore US rig count sees precipitous slide

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Land-based rig count down

During the week ending January 23, 2015, the US land-based, or onshore, rig count fell by 43 compared to the previous week’s count. There were 1,579 land-based rigs, including 11 inland water rigs. The inland water rig count decreased by one from the previous week. The onshore rig count is at its lowest since August 2010.

Last week was the ninth straight week that the onshore rig count declined. Texas alone lost 13 rigs. The onshore rig count reached 1,876 in the week ending November 21, 2014. That was the highest it had been since July 2012. A total of 297 onshore rigs have gone off-line since November 21, representing a decline of ~16%.

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The onshore US rig count started to look weak after hitting its highest levels since August 2012. The count reached the same landmark three times in three months. The onshore rig count had been on an uptick since the beginning of 2014. However, some jittery movement in the past couple of months upset this trend.

In the last year, the land-based US rig count has fallen by 142. In contrast, the number of offshore rigs decreased by two. The number of land-based rigs declined mostly in Texas, where 84 rigs shut down. This loss was partially offset by higher counts in Ohio and New Mexico, where eight and ten more rigs were added, respectively.

Why did the onshore rig count fall?

Falling crude oil prices have affected US onshore rigs most. Some of the unconventional resource shales have higher exploration and production costs because of their geology. Production techniques such as hydraulic fracturing are also costlier. Upstream companies operating at these marginal economic plays shut down or suspend production if they are unable to produce at a break-even cost.

In October, Tudor, Pickering, Holt & Co., an independent research firm that tracks the US energy sector, estimated that 160 horizontal and 30 vertical rigs were “rigs at risk.” West Texas Intermediate, or WTI, crude oil prices have decreased ~42% since then. Read Market Realist’s Is a crude oil price trend forcing energy companies to bite the bullet? to learn about upstream companies’ plans to reduce capital expenditures.

Most prolific states

Despite the recent decrease, Texas still has the most land-based rigs in the US. It has 753, or 48%, of the total US land-based rigs. Texas is followed by Oklahoma, which has 193 land-based rigs. North Dakota has 147 land-based rigs.

Some of the biggest oilfield service companies are based in Texas, including Baker Hughes (BHI), Halliburton (HAL), Cameron International (CAM), and Weatherford International (WFT). Combined, these companies form 26.3% of the VanEck Vectors Oil Services ETF (OIH).

The Gulf of Mexico is the main offshore rig indicator. We’ll discuss why in the next part of this series.

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