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Rig counts in the United States have been falling at record rates since the beginning of December as the price of oil remains too low for many producers to make a profit. Rig counts are likely to stay down until global over-supply is reduced, but it could take some time before fewer rigs begins to translate into lower production.

At the time of this article’s writing, WTI is at $52.09 and Brent is at $60.83, posting gains this week. Significantly lower oil prices caused by OPEC’s decision to maintain production in the face of stagnating global demand have taken a toll on the oil and gas industry, as U.S. operators lay down rigs.  The Baker Hughes’ (ticker: BHI) weekly rig count showed U.S. drillers have cut active rigs for the tenth straight week.

The rig count fell by almost one hundred this week to 1,358 from 1,456 last week, according to the most recent data from BHI. That represents a 7% decline from last week, and a 25% decline from the beginning of the year when the rig count was 1,811. The last high for rig counts was on December 5, 2014, when the count was 1,920.

Rig Counts 02 13 2015

Rig Count Since Dec. 5, 2014 Data: Bloomberg

 

Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

360 Commentary

EnerCom 02.13.2015

While the rig count has been declining extremely fast since December, it is not a surprising development. Our models show that the greatest stress in this low price environment will be on oil plays, which is where we are seeing the rig counts fall the fastest. Based on our models, operational costs would have to fall 41%, 52% and 66% respectively in the Permian, Eagle Ford and Bakken in order for those plays to remain economical at $50 per barrel oil and $3.50/mmBtu gas. What we are seeing is a rational reaction from operators to lower costs as the price of oil remains low.  

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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.