Rig Count Drop Accelerates Again, 24 Gone Including 1 Marcellus
For the past month and a half, MDN has brought you rig count data from Enverus (formerly Drillinginfo) each Friday. Last Friday we reported the count had hit a new modern-day low, but that the Marcellus had gained back one of the seven rigs lost over a previous three week period (see Enverus: Drop in Rig Count Slows Again, Marcellus Picks Up 1 Rig). Today’s update shows rigs hitting another new modern-day low, with the Marcellus giving up the rig it gained last week. How much lower can the rig count go?
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According to the International Energy Agency (IEA), the “lifeblood” of the global energy system is…investment. That is, money. Without investment, new sources of energy don’t appear. In 2016 IEA began to publish an annual report called World Energy Investment, in order to track spending on all forms of energy worldwide. Earlier this week IEA published its fifth annual version of the report. In the report, IEA says 2020, because of the coronavirus pandemic, will mark the largest-ever collapse in global energy investment in history. IEA says the coming investment decline will impact oil the most.
David Blackmon, a senior contributor to the Forbes magazine website and 39-year veteran working for various oil companies including Burlington Resources, Shell, and El Paso Corporation, is one of our favorite experts to read on matters relating to the oil patch. He is a strong O&G supporter. So when we spotted a recent Forbes article Blackmon wrote titled, “Why The Brief Era Of American Energy Dominance Is Over,” that sure got our attention.
For the past month or so MDN has brought you rig count data from Enverus (formerly Drillinginfo) each Friday. Last Friday we reported the count had hit a new modern-day low, and that the Marcellus had lost another couple of rigs, making it a total of seven lost rigs in the Marcellus over a three week period (see 
Baker Hughes, one of the largest oilfield services (drilling) companies in the U.S. and the world, began keeping records on rig counts starting in 1987. As of May 12, 2020, producers operated 339 rigs in the U.S. That’s the lowest number of operating rigs since Baker Hughes began publishing its venerated rig count. It’s not the kind of record we like to see broken.
Yesterday a coalition of twenty-three free market, small business, and consumer groups joined the American Energy Alliance (AEA) in warning President Trump not to slap tariffs on imported crude oil from our enemies (Saudi Arabia and Russia) as a means to help the decimated oil and gas industry. We disagree.
What happens in the oil patch has a direct bearing on the financial health of gas drillers in the Marcellus/Utica, which is why we periodically cover happenings in oil. We’re now beginning to see articles with the theme that the oil price crash is already over. Yesterday West Texas Intermediate (WTI) closed at $32.50/barrel. Still not great, but a lot better than the negative $37.63 we saw a few weeks ago! However, does a higher price for oil automatically mean shale oil drilling will immediately return, and with it more associated gas keeping the price of natgas low?
Our favorite government agency, the U.S. Energy Information Administration, published a blog post yesterday to outline the differences between the oil markets and natural gas markets and how each market responds to world events vis-à-vis pricing. EIA says crude oil markets respond quickly and often dramatically to world events, but natural gas markets have tended to be driven by regional factors and have been less connected to the international market. Oil markets are from Mars, natgas markets are from Venus.
We’re learning far more about the oil business than we ever thought we would, due to the price crash brought on by the coronavirus and the Saudis and Russians dumping. Yes, oil and gas are an industry that goes together–but natural gas really is a different kind of business overall. Different kind of drilling, different kind of pipelines, different economics. We don’t know about you, but we always thought an oil driller could simply shut-in a well (essentially turn off a valve) and later, when the economics returned, just open the valve again and let the oil flow. Boy were we wrong! Shutting in a well is a major decision with long-term consequences. It’s not just flipping a switch or turning a valve.
Simon-Kucher & Partners, a global strategy and marketing consulting firm along with Rice University surveyed 195 oil and gas industry experts from around the world. They published their findings in a report titled “2020 Oil & Gas Crisis Study.” The upshot, the sentiment, is that the current crisis faced by oil companies is largely homegrown. We did it to ourselves.
In the end, physics and not government intervention is forcing the end of large amounts of shale oil production across the U.S. With a forced shutdown of the world’s economy (including the U.S. economy) due to the coronavirus pandemic, some 30 million barrels per day of oil the world would have used (out of a previous 100 million bpd) has disappeared. Demand has dried up. Yes, the oil apocalypse is here. Welcome to Hades. Some of our favorite oil superheroes will not make it out alive.
As the price of oil continues to crash and burn, U.S. shale oil companies are “living a nightmare.” Companies are now laying off employees by the thousands and beginning to shut-in wells. Everyone is holding their collective breath waiting for a tidal wave of bankruptcies, hoping it won’t come, fearing it will. What is it like living inside the oil price crash bubble in Texas? Believe it or not, an article in the well known fake news source New York Times does a pretty good job of describing the hell that America’s shale oil companies are now living through. A quote from one operator: “April is going to be terrible, but May is going to be impossible.” And, “I’m just living a nightmare.” That about sums it up.