Permian Basin activity trend sets the tone for the oil rig count

Alex Chamberlin - Author

Aug. 18 2020, Updated 6:34 a.m. ET

The Permian Basin

The Permian Basin is located in western Texas and southern New Mexico. It generally refers to a combination of the Delaware Basin and the Midland Basin. According to the U.S. Energy Information Administration, the Permian Basin is the largest crude-oil-producing region in the US.

Rig counts in the Permian Basin can gauge upstream companies’ drilling activity. These companies include Chevron (CVX), Cabot Oil & Gas (COG), Concho Resources (CXO), and Occidental Petroleum (OXY). CVX and OXY together form 16.5% of the S&P Oil & Gas Exploration & Production ETF (XLE).

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Comparing Permian rig counts with others

Currently, there are 1,223 working oil rigs in the US. The Permian Basin has 450 of these rigs, more than any other region. The Eagle Ford has 161 active oil rigs, the Williston Basin has 146, and the Mississippian Lime has 54.

In the past year, the Permian Basin activity was lower because it lost 24 oil rigs. There were also 33 oil rigs shut down in the Williston Basin. The Williston Basin includes the Bakken Shale—one of the most prolific crude oil shale plays in the US. The Eagle Ford shale in East Texas lost 24 rigs, while the Cana-Woodford Shale in Oklahoma’s Anadarko Basin added 8 oil rigs.

Last week, the Permian Basin’s oil rig count decreased by 25 compared to the previous week. This was the eighth-straight weekly decline in the Permian oil rig count and a 5% decline from the previous week. Overall, the weekly US crude oil rig count was down 7%.

Horizontal rigs on the rise in the Permian

Horizontal rigs account for 73% of the Permian Basin’s total. Vertical rigs account for 25% and directional rigs account for ~2%. By way of comparison, on February 27, 2012, there were 478 rigs. Only ~23% of the rigs were horizontal. At the time, rigs in the Permian Basin were mainly vertical. Vertical rigs accounted for ~74% of the rigs in the Permian Basin. Directional rigs accounted for ~3%.

In the next part of this series, we’ll discuss how the rig trajectory mix has changed.


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