Shale drillers adding more rigs in low-cost Texas fields
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Written by: DAVID WETHE
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The number of land rigs targeting crude and gas in the U.S. jumped by 14 to 482 this week, led by adds in the Permian and Eagle Ford plays in Texas, according to Baker Hughes. The increase was partly eclipsed by seven offshore rigs idled in the Gulf of Mexico because of Hurricane Hermine. Since the end of June, 93 rigs have resumed drilling.
“The Permian Basin remains the ideal place to be, and number two on cost effectiveness would be Eagle Ford,” James Williams, president of London, Arkansas-based WTRG Economics, said Friday. “Why would you drill in the Eagle Ford? Only because you don’t have enough acreage in the Permian Basin.”
Wells in the Permian, the biggest U.S. oil field, which straddles West Texas and New Mexico, remain profitable even when crude prices drop below $30 a barrel, said Pioneer Natural Resources Chief Executive Officer Scott Sheffield in a Bloomberg Television interview on Friday. For shale drillers such as Irving-based Pioneer, “break-even” typically means operating costs plus a 10 percent or 15 percent return.
Crude prices rose this year partly on speculation that informal discussions among members of the Organization of Petroleum Exporting Countries may lead to action to stabilize the market. Oil gained Friday after four days of declines following remarks by Russia’s Vladimir Putin supporting an output freeze agreement.
The oil price recovery from a 12-year-low in February is what prompted producers to begin returning parked rigs to service after idling more than 1,000 rigs since the start of last year. Gas has jumped more than 40 percent since late May as a heat wave in the eastern U.S. increased the use of air conditioning, boosting consumption of the power-plant fuel.
The total number of oil rigs rose by just 1 to 407, considering that 6 were idled in the Gulf, the Baker Hughes data showed. Prior to last week, when the count was unchanged, explorers added 76 oil rigs over eight straight weeks, the longest streak in two years. Oil companies operating in the Permian Basin and Eagle Ford Shale, again led the expansion, each adding a trio of rigs this week.
The number of rigs is still down more than 1,400 from a 2014 peak. The long-term decline in drilling has led to a slowdown in crude production. Crude output fell by 60,000 barrels a day to 8.49 million during the week ended Aug. 26, the Energy Information Administration reported Wednesday.
West Texas Intermediate, the U.S. crude benchmark, settled 3 percent higher at $44.44 on the New York Mercantile Exchange.