U.S. energy companies started the new year with continued additions of oil and natural gas drilling rigs. This week’s increase in rig count was after two years of decline.
Baker Hughes Co, an energy services company, reported that the oil and gas rig count, which is an indicator of future output, rose by two to 588 in a week to January 7, its highest level since April 2020.
Analysts noted that although the rig count has been increasing for 17 consecutive months, production is still expected to decrease in 2021. This was because some energy companies continue to be more focused on returning money to investors than on increasing output.
The total number of rigs was up 228 or 63% over last year.
U.S. oil production rose 1 to 481 this week, their highest level since April 2020. Gas production rose 1 to 107, their highest level since March 2020.
U.S. crude oil futures traded below $79 per barrel Friday, placing the contract on track for an increase for the third week in succession for the first time since October.
However, oil prices rose by 5% in the first week after rising 55% in 2021. A growing number of energy companies said that they intend to increase spending in 2022. This is after cutting drilling and completion costs in 2019 and 2020.
The combined count grew 235 after declining 454 rigs by 2020 and 278 in 2019.
However, the 2021 spending increase was modest and most of it went towards completing wells that were drilled in the past. These wells are known as “drilled but not completed” (DUC) wells.
Analysts at EBW Analytics Group stated in a note that approximately 25% of all recent well completions are based on the non-renewable source DUCs. This means that a sustained recovery in the rig count may need to be achieved in 2022 in order to maintain recent good completion rates.
U.S. financial services company Cowen & Co stated that the independent exploration and production companies it tracks will increase spending by approximately 13% in 2022 versus 20,21 after increasing spending by about 4% in 2020 versus 2020.
This is due to a decrease in capital expenditures of approximately 48% in 2020, and 12% in 2019, respectively.
