12-20-14: Drillers Facing Lowest Oil Prices Since 2009 Idle Rigs.

Drillers cut the number of rigs targeting U.S. oil to the lowest level in six months as crude traded below $60 a barrel for the seventh straight day and OPEC resisted calls to curb production.

Rigs targeting oil declined by 10 to 1,536, Baker Hughes Inc. (BHI) said today on its website. Those seeking out natural gas fell by eight to 338, the Houston-based field services company’s website. The total count lost 18 to 1,875, the lowest level since July.

The number of rigs targeting U.S. oil has slid from a record 1,609 as drillers retrench in response to escalating competition from the world’s largest suppliers that’s sent international oil prices plummeting by more than $50 a barrel. Eight hundred more rigs are at risk of being idled should prices remain where they are, suspending an unprecedented boom in domestic production that’s brought the nation closer to energy independence than it’s been in three decades.

The mindset of U.S. energy explorers has “drastically changed” after the recent $15- to $20-a-barrel drop in oil prices, Tudor Pickering Holt & Co. said yesterday in an e-mailed note. “Rigs are likely to fall out of the market at a steeper pace with drops starting to gain momentum early next year.”

Rising Production

Members of the Organization of Petroleum Exporting Countries, responsible for 40 percent of the world’s oil supply, have resisted calls to cut output since deciding on Nov. 27 to maintain a collective target. It would be “difficult, if not impossible” for Saudi Arabia or OPEC to give up market share by curbing production, Ali Al-Naimi, Saudi Arabia’s oil minister, said in comments published this week by the Saudi Press Agency.

Even as a worldwide surplus weighs on prices, output from U.S. wells is poised to approach a 42-year record next year as producers take advantage of declining equipment costs and enhanced drilling techniques.

Domestic oil output climbed 19,000 barrels a day in the week ended Dec. 12 to 9.14 million, the highest level in weekly Energy Information Administration data going back to 1983. Production will reach 9.3 million next year as drillers pull record volumes from shale formations including North Dakota’s Bakken and Texas’s Eagle Ford, according to EIA forecasts.

Permian Basin

Joe Mills, chief executive officer of Eagle Rock Energy Partners, said his Houston-based company may increase its rig count by as many as two by the end of next year.

“I absolutely do not believe that we’ll be living in a $50 oil world for any length of time,” he said in an interview this week.

Other producers, including ConocoPhillips (COP) and Oasis Petroleum Inc. (OAS), announced plans to curb spending. Chevron Corp. (CVX) and Linn Energy LLC (LINE) have put capital plans on hold.

Rigs in the Permian Basin of Texas and New Mexico, the biggest U.S. oil play, slid by eight this week to 532. Those in the Midcontinent’s Williston Basin, home of the Bakken, fell by seven to 180. In Canada, oil rigs slid by 25 to 190, the lowest since July.

“The Permian Basin count is the lowest since April, way off its high, and the Williston is at the lowest since July, as high-cost producers slow down their drilling,” James Williams, president of energy consulting company WTRG Economics, said by telephone from London, Arkansas. “We’ll easily be below 1,200 rigs by the end of the first quarter if we stay at current prices.”

The international benchmark North Sea Brent oil and the U.S. counterpart West Texas Intermediate crude both dropped to their lowest levels since 2009 this week before rebounding today. WTI for January delivery rose $2.41 to close at $56.52 a barrel on the New York Mercantile Exchange. Brent for February settlement increased $2.11 to $61.38 a barrel.

Source: Bloomberg – By Lynn Doan and Jessica Summers Dec 20, 2014