• 3 minutes This Battery Uses Up CO2 to Create Energy
  • 5 minutes Shale Oil Fiasco
  • 9 minutes Don't sneeze. Coronavirus is a threat to oil markets and global economies
  • 12 minutes Historian Slams Greta. I Don't See Her in Beijing or Delhi.
  • 2 mins Which type of Hegemony will China follow
  • 17 hours Boris Johnson taken decision about 5G Huawei ban by delay (fait accompli method)
  • 1 min China gets caught?
  • 7 hours Demand for Diesel vs. Oil
  • 20 hours Yesterday POLEXIT started (Poles do not want to leave EU, but Poland made the decisive step towards becoming dictatorship, in breach of accession treaty)
  • 3 hours Us Shale: Moving the US shale revolution forward
  • 2 days Here is Why People Lose Money Trading Natural Gas
  • 21 hours Environmentalists demand oil and gas companies *IN THE USA AND CANADA* reduce emissions to address climate change
  • 1 day Tesla Will ‘Disappear’ Or ‘Lose 80%’ Of Its Value
  • 2 days Let’s take a Historical walk around the Rig
  • 2 days US Shale: Technology
  • 2 days Governments that wasted massive windfalls
Alt Text

Just How Serious Is The Shale Slowdown?

There has been a lot…

Alt Text

The Latest Texas Oil Boom Has Sent Emissions Soaring

The ongoing growth of fracking…

Alt Text

How China Could Restart The U.S. Oil Export Boom

China may resume purchases of…

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

Premium Content

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:




Download The Free Oilprice App Today

Back to homepage




Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play