Another big drop in U.S. rig counts and warnings from major oil service firms is making it clear that the Shale oil slowdown that I predicted is here. Baker Hughes reported a plunge of 7 oil rigs and eight natural gas rigs. Some of the drop is storm related but a lot of the drop is not. We know that in the prolific Permian basin rigs fell by 6 as Schlumberger CEO Paal Kibsgaard warned that U.S. energy and production companies seems to be moderating and that while he expects continued growth in the U.S., he believes the pace would slow. He also said that “There are clear signs the global oil market is balanced, which would support higher oil prices and investments if sustained, the head of Schlumberger said according to UPI. He said “The reduction in global oil inventories in the third quarter is clearly showing that the oil market is now in balance, which is reflected in the upward movement in oil prices over the past month”.
Reuters reports that, Baker Hughes’ CEO Lorenzo Simonelli was more pessimistic, saying the oilfield services industry continues to be volatile and describing the business environment as “challenging” with customers pushing out some equipment purchases. “We have seen some improvement in activity but we have not seen meaningful increases in customer capital commitments,” he said.
The FT also is reporting that shale oil firms are finally focusing on profitability and not just volume of production. That means that shale producers will reduce production until they can start making money. Yet even with the cutbacks there are rising production costs per well and a shortages of oil workers that are tired of getting hired only to be fired a few months later. The frac crews will now command higher wages and that will increase to cost per well.
It also means that it will be more difficult for frac producers to ramp up production, this should mean that U.S. shale production will continue to be revised downward by major reporting agencies. We are still hearing reports that the production per well is falling.