Onshore rig count is down
During the week ending March 6, 2015, the US land-based, or onshore, rig count fell by 75 compared to the previous week’s count. Last week, there were 1,141 land-based rigs, including eight inland water rigs. The inland water rig count remained unchanged from the previous week. This takes the US onshore rig count to the lowest it’s been since December 2009.
Last week was the 15th straight week that the onshore rig count declined. Texas alone lost 32 rigs. The onshore rig count reached 1,876 in the week ending November 21, 2014, the highest it had been since July 2012. A total of 735 onshore rigs have gone offline since November 21, representing a decline of ~39%.
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, while the onshore rig count had been on an uptick since the beginning of 2014. Falling crude oil prices started to affect that trend and in response, the onshore rig count has reversed from its uptrend.
In the last year, the land-based US rig count fell by 596. In contrast, the number of offshore rigs decreased by four. The number of land-based rigs declined the most in Texas, where 323 rigs shut down. Plus, North Dakota lost 65 rigs last year.
Why did the onshore rig count fall?
Falling crude oil prices have affected US onshore rigs the 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 more expensive.
Upstream companies operating at these marginal economic plays shut down or suspend production if they are unable to produce at a break-even cost.
Texas expected to lose more rigs
Economist Karr Ingham of Ingham Economic Reporting, an economic analysis and research firm, expects that the majority of active Texas rigs will be shut down if the price of crude oil stays low and demand weakens.
Most prolific states
Despite the recent decrease, Texas still has the most land-based rigs in the US, with 569, or 47%, of the total US land-based rigs. Oklahoma follows Texas with 146 land-based rigs, and North Dakota has 105 land-based rigs.
Some of the largest oilfield service companies are based in Texas, including Baker Hughes (BHI), Halliburton (HAL), Cameron International (CAM), and Schlumberger (SLB). Combined, these companies form 40.9% of the VanEck Vectors Oil Services ETF (OIH).