US oil, gas rig count falls 10 to 681 on week, as basin activity hits a two-year low

The US oil and natural gas rig count fell 10 to 681 for the week ended Dec. 6, according to S&P Commodity Insights data, hitting a two-year low as analysts appear to be revising down activity expectations for the coming year owing to big leaps in oilfield efficiencies.

The last time the rig count was lower than it was for the week ended Dec. 6, 2023 was in mid-December 2021, at 676 – and at that period it was on the way up from a low of 297 during the pandemic in September 2020, an S&P Global data analysis Dec. 14 showed.

Still, the week ended Dec. 6, 2023, is the fifth straight week of a domestic rig count that has persisted below 700, and has been swinging on or around the 700 mark with mostly minor ups and downs since mid-August.

"It's fair to say nearly everyone you speak to has been surprised on how long it took to reach the bottom" of the rig count's 2023 descent, Jason Bandel, a research analyst for Evercore ISI Group, said. "Given this backdrop, North American E&P capex will significantly decelerate in 2024, with modest rig count additions in the next year."

"We're seeing 20-40 rigs" added over 2024, Bandel said during an Evercore webinar explaining the investment bank's 2023 Global E&P Spending Survey which came out Dec. 6. Evercore in late September had forecast that 40-50 rigs would be added in 2024 in the Lower 48.

Super-spec rigs in demand despite less activity

"Super-spec rigs are still in decent demand," Bandel said, referring to newer, top-tier rigs that are preferred by upstream operators. Rig day rates are now in the low $30,000s, after having hit or even exceeded $40,000 or so, but the lower level still "generates decent margins in the high teens," he said.

Even so, domestic upstream operators likely will not spend as much next year, on activity. Dollar outlays for the US in 2024 will be roughly $114.5 billion in 2024, according to Evercore, up just 2% from 2023, whereas US spending in 2023 (at $112 billion) was up nearly 20% from 2022.

So far, the domestic rig count is down 186 this year, after having begun the year at 867. Its most precipitous month-to-month decreases were April to May, when it lost 34 rigs, and May to June when it lost 37 rigs.

David Bat, president of Kimberlite International Oilfield Research, noted in a Dec. 6 webinar with Evercore that the rig count is at historically low levels, although US production is historically "very high." By contrast, in 1980, the US was running about 4,000 drilling rigs. More recently, less than a decade ago, more than 2,000 were active for most of 2014.

He attributed recent rig declines to "drilling intensities" where operators have developed efficiencies over time that chipped away at the number of days required to drill wells, and completion efficiencies where more well "stages" or sections, were being hydraulically fractured, thus allowing oil and gas to flow easier and faster through the wellbore.

But even with these efficiencies that have resulted in a steep US rig decline in 2023, the number of wells drilled needs to rise – and that means rigs will need to be added in 2024, he told S&P Global Dec. 12.

US well count needs to rise: Kimberlite exec

"We're only spudding about 4,000 wells a quarter, and at the current spud rate we'll only drill about 16,000 wells in 2024 -- well below the 17,500 wells we'll need just to maintain production levels," he said. "That's why we have to add some rigs from this current low level."

However, Bat also has lowered his estimate of the number of rigs needed from 80 in September to 60 currently.

"In 2024, maybe instead of adding a lot of rigs as we did in 2022, or shedding a lot of rigs as we did in 2023, it will be a little more levelized, and we'll see less volatility in the rig count," he said.

Thus, instead of seeing the Baker Hughes land rig count – which is currently a little over 600 but began 2023 at more than 750 – climb to the high 600s or low 700s at the end of 2024, "we may end up at 640 or 650, and you don't have precipitous volatility," he said.

For the week ended Dec. 6, the US rig count within individual basins was a hodgepodge of mostly adding or dropping one or two in each play, plus two weekly stand-stills.

The Permian reflected the biggest change, dropping three rigs leaving 313. Otherwise, the SCOOP-STACK added two rigs for a total 26, while the Williston Basin shed two rigs leaving 35.

The Haynesville Shale and the DJ Basin each added a rig for respective totals of 53 and 16, while the Utica Shale decreased by one rig, leaving 10.

The Eagle Ford Shale and the Marcellus Shale 55 and 26. were unchanged on the week at 55 and 26, respectively.