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Rigs drop as downturn continues

Permian Basin oil producers continued to respond to low prices by scaling back, shedding another 15 rigs during the past week to a total 487.

The drop followed the starkest national weekly drop since 1991. Two weeks ago, the Permian Basin shed 28 rigs, nearly half of those nationally.

Oil producers are expected to release more rigs as their 2015 budgets take effect. Producers are delaying investments while prices remain low. The regional benchmark Plains-West Texas Intermediate ended at $45.25 on Friday. That represented some gain through the week but prices remain nearly 60 percent lower than the peak price in June.

Layoffs are expected in coming months, particularly among rig workers and oilfield services crews.

Nationally, the country lost 74 rigs to a total 1,676 during the past week, making it the largest drop since the financial crisis of 2008, when oil fell from more than $140 to less than $40 in seven months.

“This is the new normal,” said Joseph Triepke, a financial analyst from Odessa and managing director of Oilpro.com “If you have a week that’s flat, it’s a win. But I think you are going to see drops for the next few months, honestly. It’s going to be pretty steady.”

The crash also mirrors the bust of 1986 that wiped out more than two-thirds of Texas drilling rigs in a couple years. The analytics firm Genscape predicts the 2015 rig count to hit a nadir in August of 270 rigs before a gradual recovery begins.

Some energy analysts expect Permian Basin production to plateau in coming months and then start to decline. But for now, the region continues to pump more and more oil, could cause prices to drop further.

In related news, And it begins — rig stacking.

The Dallas Fed on Wednesday forecast a “very uncertain” and “significantly weaker” year for oilfield services companies in the Permian Basin, with firms expecting a decline in demand by up to 40 percent.

Major oilfield services company Schlumberger announced Thursday plans to cut 9,000 jobs or about 7 percent of its global workforce. Executives did not reveal how many jobs the company might shed in the Permian Basin, after announcing in the summer plans to hire 200 people by the end of 2014 and bring the total regional workforce to about 3,000.

But in a conference call on Friday they said the impact of the oil price drop should be “significantly more dramatic” in North America than the rest of the world.

Halliburton also announced plans this week to lay off an undisclosed number of employees in Houston in addition to 1,000 employees abroad. It is unclear again how many, if any, Odessa and Midland employees face job loss.

Announcements of dramatic cuts also continue to mount among the biggest oil producers in the Permian Basin.

Apache Corp. this week announced layoffs, including in the Midland area, but did not specify how many workers would be affected. But companywide layoffs would amount to less than 5 percent of total employees, according to the company.

Apache cut its 2015 budget by about $1.4 billion in the wake of falling prices. But executives planned to allocate more than half of the remaining $4 billion to operations in the Permian Basin.

Two other major pure-play operators in the Permian Basin, Diamondback Energy and Concho Resources, announced cuts that did not include layoffs in recent weeks.

Diamondback executives announced Tuesday they would scale back 2015 capital expenditures by about 40 percent to up to $450 million, running three rigs instead of eight and drilling 30 percent fewer wells from last year.

The company planned to release two horizontal wells and a vertical well in February.

The week before Diamondback announcement, Concho executives announced they would reduce capital expenditures by about a third to $2 billion. The Midland-based company is largest pure-play company operating in the Permian and had planned an aggressive ramp up to meet a goal of doubling production in three years.

But now Concho plans to reduce the average 36 rigs running they had at the time of the announcement to about 25 later in the year.

One of the largest drilling rig companies, Helmerich and Payne, reported Jan. 7 that it expects to idle as many as 15 percent of the company’s rigs in the country, within a month with even more lay-downs ahead. Many of the company’s rigs are in the Permian Basin and several sat idle this week along Business 20.

The energy analytics firm Wood Mackenzie predicted on Thursday that prices should pick up in the second half of the year, with mergers and acquisitions increasing from about $2 billion to about $10 billion.

“With a lower oil price environment expected during the first half of the year, there could be possible consolidation or the dissolution of smaller operators that are not well-hedged and are financed by high-yield debt,” Wood Mackenzie reported.

Oil prices keep falling in response to signs of oversupply and weakening global demand, along with a Thanksgiving Day decision by the Organization of Petroleum Exporting Countries to defend the cartel’s market share not to boost prices by cutting production. The Permian Basin shed more than 40 rigs through the end of 2014.

“For the Permian it honestly just doesn’t matter where it bottoms, as long as it bottoms and companies get to a level where they comfortable with it and can start planning for it,” Triepke said. “Right now, they don’t know what to plan for.”

Contact Corey Paul on Twitter @OAcrude on Facebook at OA Corey Paul or call 432-333-7768.

 

This article was written by Corey Paul from Odessa American, Texas and was legally licensed through the NewsCred publisher network.

One comment

  1. Why do people like this ?
    A downturn in the oil & gas affects the economy it is bad for everyone

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