America’s oil boom sputtering back to life one rig at a time

The sun sets over the Bakken Oil Formation, behind an oil well near Williston, N.D. From Jim Gehrz/Minneapolis Star Tribune

The oil boom isn’t dead after all.

For the first time in five months, a rig in the Williston Basin, where North Dakota’s Bakken shale formation lies, sputtered back to life and resumed drilling for crude. And then one returned to the Permian Basin, the nation’s biggest oil play, field services contractor Baker Hughes Inc. said Friday.

Shale explorers including EOG Resources Inc. and Irving-based Pioneer Natural Resources Co. say they’re preparing to bounce back from the deepest and most prolonged slowdown in U.S. oil drilling on record. The country has lost more than half its rigs since October, casualties of a 49 percent slide in crude prices during the last half of 2014. Futures rallied above $60 a barrel early last week, but a sudden return to oil fields would threaten to end this fragile recovery.

“You’re inviting a lot of pent-up supply to come back into the market — not only do you have people drilling again, but you have this ‘fracklog’ of over 4,000 uncompleted wells,” said Harry Tchilinguirian, the head of commodity markets strategy at BNP Paribas SA in London. “And then we’re in a situation where the market could easily go back into the mid-$50s.”

While rigs are returning to some fields, the total U.S. count has continued to decline, falling 11 last week to a four-year low on Friday. The drilling slowdown won’t reach a real bottom for about another month, said James Williams, president of the energy consultant WTRG Economics in London, Ark.

“This is an indicator that we’re nearing the end of the bust,” he said. “What we’re going to see now are mixed signals from the different basins as we near the bottom of the cycle.”

Carrizo Oil & Gas Inc., Devon Energy Corp. and Chesapeake Energy Corp. all lifted their full-year production outlooks last week. EOG said last week that it was planning to increase drilling as soon as crude stabilizes around $65 a barrel, while Pioneer has said it was preparing to deploy more rigs as soon as July.

Morgan Stanley said underlying data shows drilling is already picking up in some counties within Texas’ Eagle Ford shale formation and the Permian Basin of Texas and New Mexico.

“Prices are triggering activity that could undermine the U.S. recovery, especially in 2016,” Morgan Stanley analysts including Adam Longson said in an April 27 research note.

The U.S. benchmark West Texas Intermediate oil for June delivery rose 45 cents Friday to settle at $59.39 a barrel on the New York Mercantile Exchange. Prices advanced 25 percent in April alone, the biggest monthly gain since May 2009.

The Permian will probably be the first basin to bounce back because it’s home to multiple producing zones stacked on top of each other, allowing drillers to tap oil at different depths with the same well, said David Zusman, managing director at Talara Capital Management.

“There are multistacked pay zones and sweet spots across the basin that make economic sense,” he said. “There’s more optionality associated with the Permian and more likelihood of completing those wells.”

The U.S. rig count may recover to 1,200 to 1,300 should prices rally past $70 a barrel, Allen Gilmer, chief executive officer of the Austin-based energy data provider Drillinginfo, said on May 1. The total rose for three straight days in late April, he said.

“The service companies have responded very quickly in regards to dropping prices, and it has become very attractive, especially for companies with hedged positions, to come back right now before those hedges fall off,” Gilmer said. “We’re a few weeks from the bottom now. You’ll start seeing it build up.”

From The Dallas Morning News  |  May 10, 2015