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US oil and gas rig count falls 10 to 1,161 this week: S&P Global Platts

https://www.chemnet.com   Oct 19,2018 S&P Global Platts
Combined US oil and gas rig counts fell by 10 to a five-week low of 1,161 amid further declines in the Permian Basin, S&P Global Platts data showed Thursday.
A second week of declines took total US rig counts 15 under the more than three-year high recorded in early October, but favorable drilling economics continued to support counts well above year-ago levels of 1,058. Gas rigs held steady from last week at 220, and rigs chasing both oil and gas added one for a total of 18. But domestic rigs drilling for oil fell sharply to 920 this week, down by 13 from the week prior yet still above year-ago levels of 826.

A seven-rig dip in Permian counts to 473 led the nationwide decline this week. West Texas rig counts were at the lowest since early July and down by 16 from multi-year highs of 489 in late September.

While Permian breakeven costs are among the lowest in the nation at $31.17/b, takeaway capacity remains limited by pipeline constraints. The Permian currently has around 3.5 million-3.6 million b/d of takeaway capacity. The US Energy Information Administration estimates Permian production to reach 3.5 million b/d in October and 3.55 million b/d in November. But despite these limitations, operators have still added 58 rigs to date in 2018.

Concurrent with rig count declines, Permian operators appear to be slowing production as pipelines approach takeaway limits. Permian Basin new-well oil production by rig is forecast to average 552 b/d in October, down from 562 b/d in September, EIA data showed. October well productivity is forecast to be down 4.2% from year-ago levels and 27.3% under all-time highs in August 2016.

Midstream players are scrambling to build out pipeline capacity in an attempt to relieve the bottleneck. This week, Jupiter Midstream said it had secured funding to build a 1 million b/d pipeline transporting Permian crude to Brownsville, Texas. In September, Plains All American announced its 500,000 b/d Sunrise Pipeline expansion will come online November 1, six months ahead of schedule. Earlier this month, EPIC Midstream said it would temporarily flow up to 400,000 b/d of Permian crude to the Gulf Coast through a re-purposed NGL pipeline beginning in third quarter 2019.

PERMIAN CONSTRAINTS IMPROVE ECONOMICS IN OTHER BASINS
With Permian production facing takeaway constraints, the opportunity costs of allocating drilling investment toward other basins have decreased.

Rig counts in the Williston Basin's Bakken play increased by three to 62 this week. Steadily increasing well productivity has fostered investment in the Bakken play, and rig counts have increased by 11 to date in 2018. New-well productivity in October is estimated at 1,523 b/d, up from 1,509 b/d in September and 12.6% above year-ago levels, EIA said.

Bakken cracking margins have increased sharply in recent weeks, making the crude increasingly attractive for refiners on both the Gulf and Atlantic coasts and further incentivizing drilling activity in the basin.

On the Gulf Coast, cracking margins for Bakken crude averaged a $2.21/b premium to WTI to date in October, Platts calculations showed. During the same period last year, Bakken margins averaged at a $6.92/b discount. Bakken refining economics have also improved on the East Coast compared to foreign grades. Bakken crude margins this October have averaged at a $8.95/b premium compared with West African Bonny Light and at a $12.26/b premium compared to Brent. Bakken cracking margins were at $6.41/b and $4.25/b respective discounts to Bonny Light and Brent during the same period last year.

South Texas' Eagle Ford play rig count totaled 96, an increase of one week on week, and counts in the Haynesville play were steady at 56.

Rig counts in the predominantly gas-focused plays of the Appalachian Basin edged lower this week, with Utica rigs falling one to 16 and Marcellus rigs counts down by two at 53. But with per-rig productivity up roughly 1.2% month on month in October at 16,697 Mcf/d, total Appalachia region gas production was forecast to reach an all-time high of 29.45 million Mcf/d in October, according to EIA data.

The S&P Global Platts Rig Count is an independent benchmark assessing domestic onshore and offshore drilling activity on a weekly basis. The key determinant of tallying the rig count is identifying if a rig is active in the seven-day period before the publication deadline.

Only rigs on location and working during that window are included in the count. A rig is counted as active if it is post-spud and pre-release.

The report will be published each Thursday, and includes all active or recently spudding rigs starting from the previous week's Thursday through the current week's Wednesday.
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