Baker Hughs rig count update, and the latest EIA drilling productivity report

Huge drops are coming in the US rig count over the next several months, which will dwarf the drops we have seen so far.  The Baker Hughes monthly report came out on 1/9 and showed a drop of 60 land rigs bringing us down to 1750 total in the USA.  All these rigs were oil rigs, bringing the oil count down to 1421.  The gas rig count stayed about unchanged at 329.  Notably 28 of 60 dropped rigs were in the Permian, and 8 in the Bakken.

The declines we have seen so far are not particularly substantial since we are only a bit off the highs of the fall, but rig count declines are starting to accelerate.  Rig efficiency, as tracked by EIA, is increasing at the same steady pace it has been, but I would expect rig efficiency to accelerate noticeably as less efficient rigs operators are the first to drop rigs in the major basins.

The EIA monthly drilling productivity report came out yesterday.  We have not yet seen production increases start to slow.  USA added over 1 million b/d crude production last year, and the rate of increase has not yet slowed.  It will indeed slow later this year, but it may substantially lag the rig-count decline, since there is a backlog of uncompleted wells in most of these plays, and infrastructure constraints that will be alleviated as the pace growth starts to slow.  Then if the price stays low and the rig count stays low (for instance half the current level) we will eventually see absolute month over month declines in US production, but it might not happen until late this year or even next year if prices were to more or less settle at this level or decline further.

From EIA.gov... the reason oil prices are low in a nut-shell.  The three major plays added another 90 thousand barrels per day, which is an annualized rate of increase of 1.08 million barrels per day, and this does not include other areas like the Anadarko basin and Niobrara, which are also increasing production.  Low prices have not yet taken their toll on US supply growth.  It may take many more months of low prices to curtail the supply growth.  

I threw in the Marcellus gas chart just because gas isn't getting much attention these days.  90 rigs are now growing production in a basin that produces nearly 3 million barrel of oil equivalent per day.  This is one of the most efficient major sources of hydrocarbon in the Western Hemisphere and far more cost efficient than any of the tight-oil plays.  The Marcellus is also the reason we are unlikely to see high natural gas prices any time in the foreseeable future.