U.S. energy companies added oil rigs for a second time in the last three weeks, extending a 15-month drilling recovery, but the pace of additions has slowed in recent months as firms cut spending plans in reaction to declining crude prices.
Drillers added three oil rigs in the week to Aug. 11, bringing the total count up to 768, the most since April 2015, Baker Hughes, a GE company, (NYSE: BHGE) said in its closely followed report on Aug. 11. That compares with 396 active oil rigs during the same week a year ago. Drillers have added rigs in 56 of the past 63 weeks since the start of June 2016.
The rig count is an early indicator of future output. U.S. production is expected to rise to 9.4 MMbbl/d in 2017 and a record 9.9 MMbbl/d in 2018 from 8.9 MMbbl/d in 2016, according to federal projections.
Those output gains have pressured crude prices lower in recent months, prompting several E&P companies, including Carrizo Oil & Gas Inc., Continental Resources Inc. and Denbury Resources Inc., to lower capex. Those companies and others had mapped out ambitious spending programs for 2017 when they expected U.S. oil prices to be higher than the near $48.50/bbl range where they are currently trading.
Despite recently announced spending cuts, the E&Ps still plan to spend much more this year than last year.
Analysts at U.S. financial services firm Cowen & Co. said in a note this week its capex tracking showed 57 of the 64 E&Ps it follows planned to increase spending by an average of 49% in 2017 from 2016. That expected 2017 spending increase followed an estimated 48% decline in 2016 and a 34% decline in 2015, Cowen said.
Cowen said it expects the total U.S. count, including both oil and natural gas rigs, to decline through 2017 and 2018. Most wells produce both oil and gas.
The current U.S. oil and gas rig count is 949, according to Baker Hughes. That compares with an average of 509 in 2016 and 978 in 2015.