Revisiting the Rig Count
If the first quarter of 2015 will be remembered for anything in energy markets, it will be the precipitous decline of the rig count. When oil prices began dropping last October, everyone believed the U.S. oil rig count would take a hit. Few anticipated such a dramatic and rapid slide. The total number of rigs in the United States has dropped by 600, from 1595 in October to 985 now. Among the more aggressive forecasts for the drop came from Oil and Gas Journal, whose editors predicted a decline to below 1300 rigs by the end of the second half of 2015. As we can see, reality has far exceeded these expectations. So far, oil rigs in the United States have fallen 39 percent since their October high. Of the major plays, the Bakken has been hit the worst, down 44 percent. The chart below breaks down how the Permian and Eagle Ford basins have fared, and in both cases we see a massive decline from 2014 levels. Short Term Energy Outlook release from EIA, to see if the agency revises its production forecast. While shale oil is first and foremost in most people’s minds when thinking of the steep rig decline, the damage extends to oil rigs offshore and on the international stage. The North Sea is another oil producing region that has already been hard hit by the price decline—the Financial Times reports that the number of deepwater rigs “stacked or scrapped” is hitting a two-decade high, and leasing rates for deepwater rigs has dropped by almost 50 percent since last summer. The two biggest players in offshore rigs, Sea Drill and Transocean, are stuck with an oversupply of advanced rigs commissioned during the production boom of recent years, for which there is no longer a market. Once oil prices rebound, the abundance of offshore drilling rigs will surely be put rapidly to use by hungry players. However, for companies like Transocean, the trick is to weather the immediate storm of today’s low price environment—Moody’s just downgraded the company’s rating to “junk” due to the number of idled rigs and the company’s falling revenue.
Iran Deal Spurs Regional Rivalries
May 12, 2015
May 12, 2015