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Oil Rigs Gain as Permian, Texas Lead Additions

Compared with one year ago, the U.S. land-based rig count is up 125% as drillers continue returning to their favorite shale patches. Over the same period, the U.S. offshore rig count has languished, up two units during the week ending Friday but still down by one rig from a year ago, according to Baker Hughes Inc.

That disparity in activity was evident at the recent annual Houston Offshore Technology Conference. “...[T]he Offshore Technology Conference seems to have morphed into an ONSHORE technology conference,” Raymond James & Associates Inc. analysts said in a note last Monday. It’s not just the United States; the shift is global, they said.

“We heard from several offshore players that they believe the potential of a meaningful offshore recovery is now being pushed past this decade and into 2021...We confirmed that most major offshore manufacturers are shifting focus as quickly as possible to the onshore levered products.”

The U.S. land-based rig count was at 860 on Friday after gaining seven units while the offshore count stood at 21. Nine oil rigs came back to play as one natural gas rig departed. Horizontal rigs led the charge with eight units returning.

One big reason domestic offshore drilling has lost its relative attractiveness is the Permian Basin.

The Permian Basin added eight rigs during the week, as did Texas, making them the largest gainers among plays and states, respectively.

Rigs have been flocking to the West Texas-New Mexico Permian for the attractive economics offered by its multiple sub-basins. Railroad Commission of Texas (RRC) oil/natural gas well permitting data for April shows 401 permits issued in the Midland District of West Texas. The San Antonio Area District (serving the Eagle Ford Shale) is second with 183 permits. Together the two districts accounted for more than half of the 909 permits issued in April.

During a speech in Houston at the recent 2017 Technology Forum hosted by the Texas Oil & Gas Institute (TOGI), RRC Commissioner Ryan Sitton gave a nod to the Permian.

"Right now, 40% of all U.S. rigs are located in the Permian Basin," Sitton said. "At a time when we're seeing oil prices begin to rise, Texas production reaching record highs and historic new investments in the Permian, TOGI collaborators are going to play an important role in that basin."

Technology will continue to be one important element for upstream companies hoping to make their Permian dreams come true, according to IHS Markit. “The Permian is the hottest basin going in 2017 due to its deep inventory of profitable locations under a lower oil-price scenario,” said IHS Markit’s Sven Del Pozzo, director of energy company and transaction research.

IHS Markit predicts that rising service costs will raise per-well capital spending in the Permian by more than 15% this year. Increased productivity -- derived from technology advances and other means -- is one of the ways drillers counter the effect of higher costs.

Texas well permits up, completions down

The 909 original drilling permits issued by RRC in April is up from the 683 issued in April 2016. The April total included 821 permits to drill new oil or gas wells, nine to re-enter plugged wellbores and 79 for recompletions of existing wellbores. The breakdown of well types included 223 oil, 55 gas, 576 oil or gas, 36 injection, one service and 18 “other” permits, RRC said Tuesday.

In April RRC staff processed 439 oil, 44 gas, 45 injection and two “other” completions compared to 873 oil, 120 gas, 49 injection and five other completions in April 2016. Total well completions processed for 2017 year to date are 2,455; down from 4,499 recorded during the same period in 2016.

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