Rising rig count, fewer unemployment claims equate to oil and gas industry bounce-back
January 22, 2017
U.S. rig count continues steady weekly jump
The number of rigs exploring for oil and natural gas in the U.S. jumped 35 this week to 694, according to the weekly Baker Hughes rig count.
A year ago, 637 rigs were active.
Colorado rigs remained steady at 28; Texas jumped by 17 rigs, Oklahoma increased by seven, North Dakota was up three and Ohio two. New Mexico, Pennsylvania, Utah and West Virginia increased one apiece.
Alaska, Arkansas, California, Kansas, Louisiana and Wyoming were all unchanged.
The U.S. rig count peaked at 4,530 in 1981. It bottomed out in May at 404.
— Associated Press
Crude oil prices
Crude prices closed Friday at $53.22. A year ago this week, prices were at $32.19.
Colorado's rig count is at its highest level in more than a year, suggesting the oil and gas downturn in the past couple of years is on the rebound, and hundreds more people are working.
The weekly rig count remained at 28 for a second week as of Friday, falling one from the first week of January, according to the Baker-Hughes rig count, which is updated weekly.
The last time it was near that level came in December 2015 when the Colorado count was at 25, plummeting after reaching a high of 64 that year. The rig count settled a bit in 2016 to hover in the 17-20 range, jumping to 28 by Christmas.
The rig count is important in an oil and gas producing area because each rig puts roughly 100 people to work in various roles.
“We’re hoping things stay where they are so we can stay solid. We have the ability to add a rig if commodities dictate, but also pull back if commodities dictate.
— Craig Rasmuson, executive vice president of business development for Synergy
Unemployment claims in the third week of January have fallen to year-long lows as well, according to numbers provided by the Colorado Department of Labor and Employment. Continued unemployment claims in the mining sector (of which oil and gas is a majority contributor) fell to 528 as of the third week of December, dropping 55.7 percent in the past year, and the largest drop of any industry in the state, according to the state department. The year-long high was posted in the third week of March with 1,595 continued unemployment claims.
Oil prices plummeted in the past two years, hitting a low of $26.68 per barrel almost a year ago to the date. While that may have been good news at the gas pump, it devastated the industry. Companies spent all year waiting for the return to solid prices of $50 or more a barrel.
West Texas Intermediate, the U.S. benchmark price, closed at $53.22 on Friday.
Today's prices could equate to a bit more confidence among oil and gas operators throughout Weld County, who are drilling into the Denver-Julesburg Basin.
Anadarko Petroleum, the largest oil and gas producer in Weld, reduced its drilling rigs to one last year, but added two more in October.
The company added three more this month to a firm six. In the industry's heyday in 2014, the company was running 13 rigs in Weld County.
"I would anticipate our activity levels to return to 2014," said Robin Olsen, public affairs manager for Anadarko's Rockies division in Denver. "Due to the efficiencies that we've gained in our cycle times and our technology in our well design, we're able to drill the same number of wells with half the number of rigs.
"That's something we're super excited about, because we continue to invest in technology that reduces disturbance, the surface impacts and continuing to produce the resources we all need and use."
Bill Barrett Corp. stopped its drilling program in March but just announced in December it would resume it.
Noble Energy, Weld's second largest producer, operating with two rigs this past year in Weld, plans to add a third rig by mid-year. Company documents report the company plans 13-16 rigs by 2020.
Synergy Resources, which moved its offices to Greeley from Platteville last year, have been operating all year with two rigs; a third could be added this year.
"We're hoping things stay where they are so we can stay solid," said Craig Rasmuson, executive vice president of business development for Synergy. "We have the ability to add a rig if commodities dictate, but also pull back if commodities dictate."
PDC Energy, which is another top producer in Weld, has revamped its expected capital investment in the county for the year to $490 million, up about 32 percent from what it estimated just a couple of months ago. Some of that will come with the addition of a fourth rig to its drilling program.
Likewise, Extraction Oil and Gas added a third rig in December. The company plans to add a fourth "on a spot basis," according to its investor presentations.
While the rig count increases, on paper it looks to have added about 800 jobs to the oil patch since December, that may be a bit deceiving.
Rasmuson said service companies, which employ rig workers, are remaining conservative. They may have added only 400 workers, and doubling their crews' time. That will increases costs to oil and gas companies.
But adding experienced work force to handle excess work may be a bit tricky in this environment. Rasmuson said many oil field workers who were laid off had to find new careers to feed their families.
"They're probably pretty skiddish about coming back," Rasmuson said. "I don't think they're going to jump back in."
Rasmuson said he feels like more time is necessary to see if this rally is indeed a comeback.
"It's probably too soon to tell," he said. "There have to be a few quarters in '17 to see how things settle out, if you will. Obviously it's a good sign, but it's so early. I don't think it's knee-jerk, but we're at the first of the year. The election has given the industry some optimism."
He said those in charge of company budgets will likely play it safe until mid-year to see if the current oil prices are sustainable.