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U.S. rig count for oil and gas and future economic growth

USA_riggcount_2012

Why is it interesting to study drilling rig statistics? The answer is that drilling rig activity indicates the future direction of the oil and gas industry.

In a short article without comments Oil & Gas Journal assert that the number of drilling platforms currently drilling for oil and gas in the USA has decreased by 12 units to 1749. Compared with the number of rigs one year ago, 2008 rigs, that is a decrease of 13%. A somewhat more detailed study shows that 51 rigs are drilling offshore, 429 rigs are drilling for gas and 1316 for oil while the rest could not be categorized. Those who are interested in the detailed statistics can visit the website of Baker Hughes Inc. http://investor.shareholder.com/bhi/rig_counts/rc_index.cfm There one can also read that there are 601 rigs in Canada and 1253 rigs currently drilling in the rest of the world. Thus the total number of rigs currently drilling in the world is 3603 and 65% of these are in North America.

USA_riggcount_2012_Oil_GasUSA_riggcount_2012

I have now borrowed two figures from J. David Hughes’ presentation at the ASPO Conference in Austin last year. He used statistics from Baker Hughes and divided up the drilling rigs into “horizontal”, “directional”, and “vertical”. The type that is interesting from a fracking perspective is the horizontal rigs and that is a technology that was first developed for offshore work. Up to 2004 it is the offshore rigs that are horizontal. The enormous increase in horizontal rigs since 2004 is associated with production of shale oil and gas. The statistics show that approximately a third of the world’s drilling rig capacity is currently used in fracking. The fact that the price of natural gas has fallen so low in the USA such that it is not profitable to drill new wells can be clearly seen in the statistics. The fact that oil/gas production from each fracking well falls so rapidly during the first year of production most likely means that gas production in the USA will now fall. In reality we can already see that happening if one examines the production from the Barnett Shale. The gas wells that they now drill must be “wet” if they are to be profitable.

During recent months fracking has been promoted as the cure for Peak Oil. It is said that production in the USA is to more than triple. However, the trend that we are now seeing gives no indication that gas production will increase in the near future. To triple production would require the number of drilling rigs to increase to 4000. At the moment, an enormous number of wells must be drilled just to maintain the current production level. David Hughes showed in his presentation that it requires 7641 wells to maintain current production of oil and gas. A doubling of production would require 15,000 new wells per year to hold production constant at that new level.

When one studies the total rig statistics for the USA one can see that it is an excellent indicator of economic conditions. From 2003 until the economy crashed in 2008 the number of rigs increased markedly. The fact that the number of rigs then halved within a few months of the crash shows how deep the crisis was. From 2009 until January 2012 there was, once again, growth and the number of rigs increased. One year ago we were back at a level of 2,000 rigs. Now the number of rigs is decreasing signficantly and the question is if this is an indication that we are heading for worse times economically.

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