uploads///Shale rigs

Permian and DJ-Niobrara among Larger Rig Movers

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Oct. 26 2015, Published 2:19 p.m. ET

Crude oil shale rig movements

Among the key shale movements in the week ending October 23, the Permian Basin and Utica Shale lost three and one crude oil rigs, respectively. Meanwhile, the DJ-Niobrara and the Eagle Ford Shales added three and one crude oil rigs, respectively, in the week ending October 16. One more crude oil rig was idled in the rest of the US basins in the week ending October 16.

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A closer look

The Williston Basin has lost 128, or 67%, 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 United States. The Eagle Ford Shale in South Texas lost 140 rigs, or 68%, over the same period.

Lower Bakken and Eagle Ford rig counts could lower crude oil production. Crude oil producers operating in these key US shales, including Matador Resources (MTDR) and Pioneer Natural Resources (PXD), could drive this fall. Pioneer Natural Resources constitutes 0.1% of the SPDR S&P 500 ETF (SPY).

Falling production in these regions could also lower the revenues of midstream MLPs that operate there such as Targa Resources (NGLS) and Plains All American Pipeline (PAA).

Natural gas shale rigs

Among the larger rig movers, the DJ-Niobrara and Marcellus shales lost three rigs each, in the week ending October 23. One natural gas rig was also idled in the Permian Basin in the week ending October 16. On the other hand, the Utica and Haynesville shales added three and two natural gas rigs in the week ending October 16, respectively. Three more natural gas rigs went online in the rest of the shales combined in the week ending October 16.

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In the 12 months ending October 23, 2015, the DJ-Niobrara Shale and the Marcellus Shale natural gas rig counts fell the most. During this period, the number of natural gas rigs in the DJ-Niobrara Shale and the Marcellus Shale fell by 88% and 47%, respectively. The DJ-Niobrara Shale accounts for nearly 10% of the key shale natural gas production.

The falling Marcellus Shale rig count would mean natural gas producers such as EOG Resources (EOG) and EQT Corporation (EQT) are slowing down operations in this area. Falling production could affect these producers negatively. EQT accounts for 0.8% of the Vanguard Energy ETF (VDE).

In the past year, only the Cana-Woodford and the Eagle Ford shales saw natural gas rig additions. Higher Eagle Ford production could positively affect midstream MLPs like Enterprise Products Partners (EPD), Energy Transfer Partners (ETP), and Williams Partners (WPZ), all operating in the region.

Key US shales

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

Next, we’ll discuss the Permian Basin’s rigs and their importance in the US oil and gas industry.

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