The US oil, gas rig count gained five to 669 for the week ended Feb. 21, S&P Global Commodity Insights data showed, as fourth-quarter upstream earnings season essentially came to a close with indications of slightly higher capex in 2024 and also of moderating production growth. Moreover, half the eight largest unconventional domestic plays gained rigs, an analysis by S&P Global showed Feb. 29.
The week-on-week activity increases also may a harbinger of more rig additions in US fields over 2024 to keep oil output growth momentum churning, as domestic production – which currently hovers around a record 13.3 million b/d –continues to ascend further, according to a new S&P Global report. “While rig activity declined through fourth-quarter 2023, we forecast that ongoing completion of DUCs from 2023 will carry US output to fresh highs before the end of first-quarter 2024,” the S&P Global Oil Market Edge report, released Feb. 26, said. “The slowdown in rig activity potentially makes first-half 2024 a bit more sluggish, but we think the capex is in place to ensure volumes,” the report said.
The US rig count started 2023 at 867 and ended December at 676, leaving behind a drop of 191 rigs in 12 months. But domestic crude production still continued to creep higher, gaining 800,000 b/d from January through December.
2024 oil output seen at 14 million b/d S&P Global sees slightly lower oil supply growth in 2024 of more than 600,000 b/d, ending the year at “just shy” of 14 million b/d. By contrast, the latest US Energy Information Administration forecast calls for US production to be lower than the December 2023 benchmark of 13,200 b/d through the middle of 2024.“We forecast production will … not exceed the December 2023 record until February 2025,” the EIA’s Short-Term Energy Outlook report said. S&P Global believes higher DUCs will keep the momentum going in the short term and forecasts rigs to begin rising starting in Q1 2024 and will speed growth in second-half 2024,. “While spending plans are locked in, the ability for markets to consolidate above a WTI price of $70/b adds a measure of confidence to our forecast,” it said.
DUCs are drilled but uncompleted wells that haven’t yet been finished in order to be produced. That happens often merely from uneven timing – as drilling and completions are carried out in separate batches, leaving lag times between the two activities – or deliberately as operators wait for higher prices or want to build up well inventories for the future. S&P Global projects US onshore capital spending will rise nearly 12% in 2024 to $115 billion, from $103 billion in 2023 — with $6 billion or 5% of the total stemming from cost inflation.
Bakken, Eagle Ford at pre-pandemic levels. Notably, both Bakken Shale and Eagle Ford Shale production is back to pre-pandemic levels, “defying some calls that the plays were exhausted,” the S&P Global report said. “We think planned spending levels are sufficient to deliver another year of growth” in the two maturing plays, it said. “However, resource exhaustion is a factor for both … as top-tier drilling locations run low, which we think will start hitting the Eagle Ford this year (December 2024 versus December 2023 output is predicted to drop 4.5%) while the Bakken grinds upward.” “Growth is now focused solely on the Permian, delivering 72% of the volume. Total spending increases compared to last year show the Permian up nearly $9 billion and the Bakken up $1.5 billion, while the Eagle Ford budgets struggle to stay flat,” the report said.
In the years since the 2020 pandemic, E&P companies have sought to make the most of their core inventories through improving efficiencies. But the choicest acreage is running low, leaving E&Ps to either consolidate – which they’ve pursued at breakneck levels – or knocking down costs on lesser rock for higher economic returns. But the question remains how long this can occur, or whether there’s an ultimate wall that will be reached before renewable and alternative fuels can fill any gaps from fossil fuel output declines.
For the week ended Feb. 21, the Permian Basin saw the single largest play increase of five rigs, for a total 317 — while the Eagle Ford Shale was up three to 61 rigs. Adding a rig each were the Williston Basin, making a total 35 rigs, and the gas-prone Marcellus Shale, making 27. But the DJ Basin lost three rigs leaving 11 — a level not seen since September 2021. The Haynesville Shale, largely a dry gas basin, shed two rigs for a total 47 while the Utica Shale shed one rig for a total 11. And, the SCOOP-STACK was unchanged at 26 rigs.
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