Oil drilling touches a 15-year low as shale exploration falls

A pump jack in Midland, Texas. Supply is likely to decline by 7.1m bpd this year, and rise by 1.6m bpd in 2021, according to the IEA. Reuters

Drillers cut exploration in US oil fields to a 15-year low as some of America’s most prolific shale explorers vowed to show restraint amid a stabilisation in oil prices.

The number of active oil rigs in the US fell by four to 176, the lowest since 2005, according to Baker Hughes data released on  Friday. Beyond the addition of a single rig two weeks ago, explorers have been shutting off rigs for four and half months.

Explorers are channeling cash into dividends and other shareholder-friendly initiatives at the expense of drilling to appease investors fed up with years of poor returns.

“North American E&Ps are in a battle for investment relevance, not a battle for global market share,” Matt Gallagher, chief executive at Parsley Energy, told analysts during a conference call this week. “Allocating growth capital into a global market with artificially constrained supply is a trap our industry has fallen into time and time again.”

Most of the weekly rig decline occurred in the Permian Basin, North America’s biggest oil field, the data showed. Drilling also dropped in the Eagle Ford Shale in South Texas and stagnated in the Bakken and Denver-Julesburg regions in North Dakota and Colorado, respectively.

Worldwide movement restrictions to prevent the spread of Covid-19 had a devastating impact on crude demand at a time when shale explorers were already struggling with too much debt and restive shareholders. While benchmark US oil futures have roughly doubled to $40 a barrel since the start of May, prices are still down by more than 30 per cent for the year.

The rig count is a closely watched metric because it’s long been considered indicative of future crude production. The relationship is imperfect, however, because of the time lag between drilling a well and commencing production, as well as other factors such as the turning off of existing wells in response to price movements.