Last Time The US Rig Count Was This Low, Abraham Lincoln Was President

Published: March 16, 2016 at 8:18 AM

(OILPRO) –

By Joseph Triepke

View the original article on Oilpro.com.

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A rig drilling today is not the same as a rig drilling 100, 50 or even 10 years ago. Leaps in modern drilling rig efficiency and productivity (as well as capital intensity) is something we've written about repeatedly over the past several years.

But the one constant in our industry's modern history is that everything starts with a rig drilling a hole in the earth. A long uninterrupted data-set makes rig counts useful context even though rigs are now less relevant to production than completions.

Last week, the total US drilling rig count fell to a record low since Baker Hughes began tracking the data in 1949. Even if we adjust today's record low rig count of 480 upwards by a liberal 30% for drilling efficiency gains, it would still be lower than just about any other time in recorded US drilling history.

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Although we don't have consistent records of active rig counts prior to 1949, we believe the total US drilling rig count hasn't been this low since the inception of the modern US oil industry - about the same time that Abraham Lincoln was sworn in as the 16th US president.

In 1859, Edwin Drake famously used a rig to drill the first successful well in Pennsylvania. His success marked the beginning of the oil drilling industry, and the number of active drilling rigs grew quickly, turning the Appalachian Basin into a leading oil producer (supplying half the world's oil).

By the time Abraham Lincoln was inaugurated as US president in 1861, the US rig count (albeit comprised of wooden derricks, not the highly engineered steel of today) was very likely either at or above today's levels and climbing. We believe that no other downturn since the modern US drilling industry began has taken the US drilling rig count as low as current levels. Doing more with less (ie technology) plays a role, but so too does the worst downturn in the industry's history.

Weekly North American Rig Count Statistics

Last week, the total US rig count fell 9 rigs to 480. The US land rig count fell 13 rigs to 450. The North America rig count fell 40 units last week with declines coming all across the market. WTI is in the high-$30s as of this writing, skewing rig count direction lower and below expectations for the rest of 1H16.

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The Independent E&Ps are cutting capex even more than we expected, and spending declines this year will likely be 40-50% below 2015 in the aggregate. While the weekly figures will ebb and flow, current oil price levels delay rig count stability. The 400 rig count level for US land will be tested soon. We believe current levels are not sustainable and will translate into a meaningful production response later this year and in 2017.

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In Canada, the rig count fell 31 rigs to 98 for the week.

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A regional summary of rig counts by key basins is below. With 152 rigs working, the Permian is still the most active basin, but it was down 6 rig on the week. The Eagle Ford, with 43 rigs running, is the second most active basin, and it was down 3 last week. With 32 rigs running, activity in the Bakken was down 1 rig last week.

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