Rigs and Spreads May 19: Unraveling

  • Rigs counts fell sharply

    • Total oil rig counts declined, -11 to 575, no higher than the level of last June

    • Horizontal oil rig counts fell, -10 at 522, here too back to June 2022 levels

    • The Permian horizontal oil rig count was down 4

    • Our model suggests continued falls in general, although next week could see a technical rebound, given this week’s steep decline

  • The pace of horizontal rig additions fell to a whopping -5.75 / week on a 4 wma basis.  

    • This number has been negative for 23 of the last 24 weeks

  • Frac spreads were -10 to 262, a level no higher than November 2021

  • Overall, the picture looks increasingly like secular decline

    • In the Permian, rig counts remain flat, essentially unchanged since last summer

      • As we noted last week, Permian production growth is slowing steadily and the Permian supply could peak as soon as Q3, and most likely within a year

      • Permian production growth has been maintained by the cannibalization of the play’s DUC inventory, down by an eye-opening one-third over the last year.  

      • At present, the Permian has only 7.8 weeks of DUC inventory at hand, a record low for the play and suggestive of a material lack of promising drilling prospects

    • In the other plays (all excluding the Permian), the rig count has been falling, although oil production has remained relatively steady

      • Given falling rig counts in these plays, their oil production may begin to slip off recent levels by, say, Q4 or early next year