Rigs and Spreads Aug. 11: Rig additions in September?

  • Rig counts

    • Total oil rig counts were flat at 525

    • Horizontal oil rig counts fell, -1 to 470

    • The Permian horizontal oil rig count was flat.

    • The Canadian horizontal oil rig count is looking a bit fragile, 19 below last year for the week

  • The US horizontal oil rig count fell at a pace of -4.25 / week on a 4 wma basis.

    • This number has been negative for 35 of the last 36 weeks

  • Frac spreads rose, +5 to 262.  Spread numbers are still too high.

  • DUC inventory came in at 15.1 weeks, in this range since last November

    • In order to hold DUC counts constant, horizontal rigs would have to rise by 57 or frac spreads would have to fall 28.  As such, DUCs appear to be rolling off at an accelerating pace.

  • The breakeven to add rigs has remained in the $75 WTI range for the last several weeks.  Given the recent strength in Brent -- $83 at writing – our model is, for the first time this year, forecasting material rig additions, from mid-September.

  • Weekly US crude and condensate production came in at 12.6 mbpd this week, up 0.4 mbpd over last week

    • Readers will recall that I wrote the following last time:

      • There is a continued disconnect among the crude supply numbers respectively from the weekly PSR, the monthly STEO and the monthly DPR (all EIA reports)…either supply trends are worse than they appear, or the weekly reporting framework needs a bit of revision.  

    • Of course, my friends at the EIA read this report. (What numbers junkie doesn’t?)  And like most analysts, they try their best with the data available, which can be challenging with high frequency numbers

      • The revision is likely to be a ‘true up’, a plug, to bring the weekly numbers into line with the monthly numbers (more on that in the next PSR report).  That is, it does not represent production growth, but rather acknowledges production growth that was not captured earlier in the high frequency (weekly) data

        • This is the role of management, sometimes to sacrifice precision for accuracy.  The right call, in my view.