The rig and spread data look, frankly, like garbage. Rigs and spreads are unable to hold level, and our analysis suggests DUCs are at best hanging on by their fingertips and actually appear to be eroding at our estimates of rig and spread productivity. The breakeven to add rigs has averaged $78 / barrel WTI for the last two months (and higher before). The shale oil sector clearly depends on a high oil price. Long gone are the days of $40 / barrel breakevens. Fair enough, the Permian continues to add supply at a decent pace, but for how long?
Matt Johnson of Primary Vision, the industry's go-to source for frac spread data, sees no joy on the horizon either, noting that
“The rig count is middling at best, service prices are depressed even as providers continue to struggle with supply chain and labor woes, and operators are being so tight with their money. Spread count might not go anywhere this year.”
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Rigs counts were down this week
Total oil rig counts fell, -7 to 600
Horizontal oil rig counts also declined, -6 to 566
The Permian shed 1 horizontal oil rig
The pace of horizontal rig additions fell to -1.0 / week on a 4 wma basis. This number has been negative for eleven of the last twelve weeks
The breakeven to add horizontal rigs came in at $78 / barrel on a WTI basis with $76 on the screen
Our model suggests that rig counts could erode at a pace of -1 / week for the next two months
Frac spreads were flat at 272
All of this paints an unfavorable picture of the US shale oil sector