Oil drilling surges in U.S. Permian and Bakken plays

Oil drilling surges in U.S. Permian and Bakken plays

LYNN DOAN

HOUSTON (Bloomberg) -- Rigs targeting oil in the U.S. jumped the highest level in six months as horizontal drilling in Texas’s Permian and North Dakota’s Bakken formations surged.

Oil rigs gained 14 to 1,411, the highest level since June, according to data posted on the Baker Hughes website. The gas count dropped six to 369, the Houston-based field services company said. Oil rigs drilling horizontal targets in North Dakota’s Williston basin surged by nine to 165, and the same count in Texas’s Permian rose by four to 214, the highest since at least February 2011.

The total U.S. count has risen six of the past seven weeks, increasing by 40 since Nov. 1, as producers use more horizontal drilling and hydraulic fracturing to reach deposits of crude in shale plays. The technological improvements have helped drive domestic oil production to the highest level in a quarter-century.

“Rigs in the Permian are moving up as they learn how to optimize production there,” James Williams, president of WTRG Economics in London, Arkansas, said by telephone. “The Williston is one of the most profitable places to drill, and the rise might reflect anticipation that it’ll be easier to get oil down to the Gulf of Mexico” as pipeline capacity expands.

Horizontal rigs in the Permian jumped 19% in the third quarter from a year earlier “as operators continue to shift toward unconventional drilling,” Vincent Piazza, a Bloomberg Industries oil analyst in Skillman, New Jersey, said in a research note Dec. 11. The horizontal rig count rose by eight to 1,145, the highest level in more than a year.

Rising Output

U.S. oil output totaled 8.08 MMbopd last week, the highest level since October 1988, the Energy Information Administration said Dec. 11. Crude stockpiles fell 2.7% to 375.2 MMbbl. West Texas Intermediate crude for January delivery dropped 76 cents, or 0.8%, to $96.74 a barrel on the New York Mercantile Exchange, up 13% in the past year.

U.S. gas stockpiles dropped 81 Bcf last week to 3.533 Tcf, the EIA said yesterday. Supplies were 7.2% les than year-earlier inventories and 3% below the five-year average.

Natural Gas

Natural gas for January delivery dropped 1.2 cents, or 0.3%, to $4.397 per MMBtu on the Nymex, up 31% from a year ago. “The rig count’s reaction time to gas prices is measured in months, not in days,” Williams said. “We’ll see some increases three months from now if prices stay at the current level.”

Oil and gas rigs in North Dakota jumped by seven to 174 this week, the highest level since July. The count in Texas gained six to 848, a three-month high, Baker Hughes said.

Producers, including Pioneer Natural Resources Co., Devon Energy Corp. and EOG Resources Inc., will spend almost $2 billion on drilling in the liquids-rich Wolfcamp shale play in the Permian next year, GlobalData, a London-based research and consulting firm, said in an e-mailed statement Dec. 11.

“The recent Wolfcamp shale boom can be attributed largely to exceptional well economics,” Taryn Slimm, a GlobalData analyst in New York, said by e-mail. “Many companies have transitioned to horizontal development strategies, and several companies producing from the play are already seeing returns on investments from anywhere between 21% and 32%.”