Rig Count in Key Shales: Permian Surges and Marcellus Loses

For the week ending July 10, crude oil rigs rose by eight in the Permian Basin. The crude oil rig count also advanced by one each in the Utica and the DJ-Niobrara shales. These gains were partially offset by five oil rigs being idled in the Eagle Ford and Williston Basins each. We’ll discuss the Permian Basin rigs in more detail in the next part of this series. Other basins added five more crude oil rigs last week.

The Williston Basin lost 108, or 60%, of its crude oil rigs in the past year. The Williston Basin includes the Bakken Shale, one of the most prolific crude oil shale plays in the US. The Eagle Ford Shale in South Texas lost 129, or 61%, of its oil rigs.

The lower Bakken and the Eagle Ford rig count can lower crude oil production growth. It can even lead to a fall in production. This will affect upstream crude oil producers operating in these key US shales, including Denbury Resources (DNR) and Pioneer Natural Resources (PXD). Falling production in these regions can also lower the revenue for midstream MLPs (master limited partnerships) like Targa Resources (NGLS) and Plains All American Pipeline (PAA) operating here.

Among the major resource shales, the Marcellus lost two natural gas rigs, while the DJ-Niobrara and the Eagle Ford added one gas rig each last week. Two more natural gas rigs were idled in other basins last week.

In the 12 months to July 10, 2015, the number of natural gas rigs in the Haynesville Shale and the Marcellus Shale fell by 36% and 21%, respectively. The falling Marcellus rig count could negatively affect natural gas producers like EOG Resources (EOG) and EQT Corporation (EQT). EQT accounts for 0.83% of the Energy Select Sector SPDR ETF (XLE).

In the past year, the Eagle Ford Shale added 13 rigs to its natural gas rig total, the most of any shale play in the US. Higher Eagle Ford production can positively affect midstream MLPs like Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), and Williams Partners (WPZ) operating in this region.

According to the EIA (U.S. Energy Information Administration), the seven key shales, including the Bakken, Eagle Ford, Haynesville, Marcellus, DJ-Niobrara, Permian, and Utica accounted for 95% of US oil production growth and 100% of the natural gas production growth from 2011 to 2013.