• 5 minutes Desperate Call or... Erdogan Says Turkey Will Boycott U.S. Electronics
  • 11 minutes Don't Expect Too Much: Despite a Soaring Economy, America's Annual Pay Increase Isn't Budging
  • 15 minutes WTI @ 67.50, charts show $62.50 next
  • 2 hours Starvation, horror in Venezuela
  • 2 mins Mike Shellman's musings on "Cartoon of the Week"
  • 2 hours Again Google: Brazil May Probe Google Over Its Cell Phone System
  • 17 hours Tesla Faces 3 Lawsuits Over “Funding Secured” Tweet
  • 4 hours Batteries Could Be a Small Dotcom-Style Bubble
  • 17 mins Renewable Energy Could "Effectively Be Free" by 2030
  • 21 hours Why hydrogen economics does not work
  • 10 hours Saudi Fund Wants to Take Tesla Private?
  • 1 day The EU Loses The Principles On Which It Was Built
  • 13 hours California Solar Mandate Based on False Facts
  • 1 hour WTI @ 69.33 headed for $70s - $80s end of August
  • 1 day WSJ *still* refuses to acknowledge U.S. Shale Oil industry's horrible economics and debts
  • 13 hours Oil prices---Tug of War: Sanctions vs. Trade War
Alt Text

Something Strange Is Happening In The Saudi Oil Patch

According to Bloomberg, Saudi Arabia…

Alt Text

Venezuela Sends More Crude To The U.S. Despite Production Woes

Despite crashing production, sanctions and…

Alt Text

Goldman Sachs Expects “Very, Very Tight” Oil Market

Investment bank Goldman Sachs warns…

Arthur Berman

Arthur Berman

Arthur E. Berman is a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and…

More Info

Trending Discussions

As Rig Count Plunges, Has U.S. Oil Reached Its Capitulation Point?

As Rig Count Plunges, Has U.S. Oil Reached Its Capitulation Point?

The big drop in rig count for the week that ended last Friday points to capitulation by U.S. shale drillers.

The total land rig count fell by 37 rigs and the horizontal rig count fell by 30 rigs (Figure 1).

Figure 1. U.S. shale play horizontal rig count. Source: Baker Hughes & Labyrinth Consulting Services, Inc.

(Click image to enlarge)

That’s the biggest drop since March 2015 and it suggests that drillers are out of cash. Until now, companies have been rationing dwindling funds from secondary share and bond offerings as well as equity capital. Related: Rig Count: Capitulation?

But those sources largely dried up after October when WTI futures prices began their fall from nearly $50 per barrel to their present value of $32.50 per barrel. Investors have finally stopped believing the claims by Daniel Yergin and Andy Hall that prices would rebound, and started paying attention to the reality that I have been pointing out since May 2015.

If companies must finally pay for new wells out of cash flow, we might expect drilling to plummet in 2016 because tight oil companies have been spending other people’s money to pay for half their drilling as late as the third quarter of this year (Figure 2).

Figure 2. Third quarter 2015 tight oil-weighted exploration and production company negative cash flow. Source: Google Finance & Labyrinth Consulting Services, Inc.

(Click image to enlarge) Related: Crashing Oil Prices And Dropping Rig Count Take Their Toll On U.S. Output

Have we reached the capitulation point or will we see some return to lower rig count declines in coming weeks? I believe that we have reached capitulation but rig counts are not overly sensitive indicators on a weekly basis of future drilling and production. Rig count reflects contract negotiations that take time and then, there is the ever-present question of drilled but uncompleted wells.

My guess is that we will continue to see a see-saw of indicators including rig count in the near-term but the trend is clearly down. Perhaps the big drop in U.S. tight oil production will finally materialize in the first half of 2016.

By Art Berman for Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News