Saturday, April 28, 2012

Charts of the Day: Oil-Gas Drilling Rig Split Now 68-32 and Net Oil Imports Are at a 20-Year Low


Baker Hughes reported yesterday that the share of U.S. rigs drilling for oil (gas) rose (fell) to an all-time high (low) this week since the oilfield service company starting keeping records back in 1987 (see top chart above, data here).  For the week ending April 27, the oil/gas split was 68.5% to 31.5%.  The pattern displayed in the chart of switching from drilling for gas to drilling for oil started about three years ago, and follows the pattern of rising oil prices and falling natural gas prices since 2009.

Accompanying the shift in the industry towards increased drilling for domestic oil, net oil imports keep falling, and reached the lowest level in the first three months of 2012 (43.4%) in 20 years, since 1992, see bottom chart above (data here).

Update: See new chart below showing the relationship between weekly oil prices and the weekly share of rigs drilling for oil since 2009 (correlation coefficient of 0.89):


19 Comments:

At 4/28/2012 11:19 AM, Blogger Buddy R Pacifico said...

The rig count for natural gas is rigged! Huh?

"The number of U.S. natural-gas rigs is “misleading” because some are actually drilling for oil and liquids, Pioneer (PXD) (PXD) Natural Resources Co. Chairman and Chief Executive Officer Scott Sheffield said."

"Pioneer has 12 rigs in Texas’ Eagle Ford and it’s reporting two oil rigs and 10 rigs drilling for gas, even though the company is primarily drilling for oil, he said. Texas Railroad Commission rules allow operators to hold 640 acres with a gas well and only 40 or 80 acres with an oil well, he said."

 
At 4/28/2012 12:13 PM, Blogger Larry G said...

" Texas Railroad Commission rules allow operators to hold 640 acres with a gas well and only 40 or 80 acres with an oil well, he said."

there are those nasty govt regs again...

the railroad commission regulates oil and gas?

really?

pretty rich when you think about it since the Gov of Texas has railed about dumb govt regs that kill business.... eh?

 
At 4/28/2012 1:28 PM, Blogger Rufus II said...

Early on, all oil produced in Tx was shipped by train; thus, the regulatory job was given to the TRC.

 
At 4/28/2012 1:37 PM, Blogger Larry G said...

and the reason for the restrictions and continuing them are.....

?

isn't this an agency that should go away?

....so I sit here waiting for the libertarian types in CD to raise me to their shoulders and cheer heartily...

;-)

Rufus.. Texas sounds a lot like California on this issue...

:-)

 
At 4/28/2012 3:34 PM, Blogger Rufus II said...

Texas has very strict regulations on drilling. Very high Royalties, also. Always has had.

 
At 4/28/2012 8:18 PM, Blogger Richard said...

Mark,

I think the corr coef is even higher. You should take monthly or quarterly averages for the price of oil?

 
At 4/28/2012 8:18 PM, Blogger Richard said...

Mark,

I think the corr coef is even higher. You should take monthly or quarterly averages for the price of oil?

 
At 4/29/2012 6:36 AM, Blogger VangelV said...

Oil imports are down because the real economy has collapsed and recovery in demand is very slow. Yes, shale oil production matters but is still small in the greater scheme as per well productivity is very low. Given the rapid decline significant drilling activity is required just to keep production levels from falling.

And some of the increase has nothing to do with the rising oil prices. In order for some of the shale companies to remain solvent they must convince lenders and investors to give them money to make up for their negative cash flows and to keep the rights to leases that they hold. If the companies were to write down some of their assets they would be thrown into bankruptcy because both shareholder equity and cash flows would be negative.

In the real world what matters is the return on invested capital and the cash flows. On both fronts the shale oil and gas industry has done poorly.

 
At 4/29/2012 6:41 AM, Blogger Larry G said...

still.. how do we explain that the CEOs of major companies including the power companies are getting on the nat gas bandwagon?

Power companies especially have to look downstream on how they produce power yet more than a couple have said that they are shutting down coal plants and going to natgas.

Once you do that... going back to coal later on is going to be difficult.

the only way that coal could come back is as the fabled propaganda version of "clean" coal....

what do the CEOs know that others do not or are CEOs susceptible of herd mentality also?

 
At 4/29/2012 8:12 AM, Blogger juandos said...

"Texas has very strict regulations on drilling. Very high Royalties, also. Always has had"...

Not exactly rufus but not that far off...

Most all states that have had an oil & gas drilling industry for several decades have evolved the standards and regulations over time...

Consider this 2008 LECG document: Comparison of Oil Tax Burdens in The Ten Largest Oil-Producing States and Texas falls in about the middle of that pack...

In Texas the royalties can be different from county to county depending on how private proterty is assessed for tax purposes...

Obviously this document and its data are verging on the obsolete now that several many more area are starting to come online with their various shale deposits...

 
At 4/29/2012 8:25 AM, Blogger Mark J. Perry said...

U.S. traffic volume increased in December, January and February on a year-over-year basis, so the economy must be improving and demand must be increasing, not decreasing.

 
At 4/29/2012 8:41 AM, Blogger Jon Murphy said...

still.. how do we explain that the CEOs of major companies including the power companies are getting on the nat gas bandwagon?

...

what do the CEOs know that others do not or are CEOs susceptible of herd mentality also?


From what I have gathered, the CEOs of these power companies are looking at the amount of NatGas we are withdrawing, the amount we have in reserve, the fact it is very difficult to export at current technology levels, the fact coal is becoming very expensive on the global market due to emerging market demand, and the fact that natgas is likely to remain a stable price in the future, and the increasing regs regarding emissions and saying "man, this is looking like the better option here."

Nobody is expecting NatGas to remain sub-$2 for any extended period of time. However, the fact is it is the realitvely cheaper option and likely to remain so. And not just in the US, either: Poland is discovering vast natural gas reserves. They are deeper than ours and a little but harder to extract, but could supply the country for 300 years. Russia is starting to tap their reserves. Dr. Perry is focusing on the US Shale Revolution, but this is slowly becoming a global thing.

 
At 4/29/2012 10:20 AM, Blogger VangelV said...

still.. how do we explain that the CEOs of major companies including the power companies are getting on the nat gas bandwagon?

Easy. The EPA will not allow older coal plants to remain open and will not approve new ones. Given the fact that it is nearly impossible to get approval for nuclear plants the utilities have to go to natural gas.

The problem is that plants have a very long lifetime and natural gas will not be cheap for as long as people like Mark are claiming because the shale producers as well as marginal conventional producers can't make a profit at current price levels.

 
At 4/29/2012 10:49 AM, Blogger Larry G said...

looks like you are probably correct on new coal plants:

The move could end the construction of conventional coal-fired facilities in the United States

" The proposed rule — years in the making and approved by the White House after months of review — will require any new power plant to emit no more than 1,000 pounds of carbon dioxide per megawatt hour of electricity produced. The average U.S. natural gas plant, which emits 800 to 850 pounds of CO2 per megawatt hour, meets that standard; coal plants emit an average of 1,768 pounds of carbon dioxide per megawatt hour."

 
At 4/29/2012 7:00 PM, Blogger Jon Murphy said...

looks like you are probably correct on new coal plants:

We should be a little careful about giving the government too much credit here. The transition towards natural gas has been years in the making. Will the new regs hurt new coal plants (and the rule is only for new plants, not current ones)? Hell yeah. But I don't think we can give too much credit to the EPA here.

 
At 4/29/2012 8:18 PM, Blogger VangelV said...


We should be a little careful about giving the government too much credit here. The transition towards natural gas has been years in the making. Will the new regs hurt new coal plants (and the rule is only for new plants, not current ones)? Hell yeah. But I don't think we can give too much credit to the EPA here.


Credit? Who the hell is giving the EPA any credit? The EPA is made up of a bunch of ideologically challenged fools who are causing consumers to pay a lot more for power than they should. Their closure of perfectly fine facilities is not a positive. It is pure idiocy.

 
At 4/29/2012 8:41 PM, Blogger Jon Murphy said...

I believe, Vangel, you said Easy. The EPA will not allow older coal plants to remain open and will not approve new ones. Given the fact that it is nearly impossible to get approval for nuclear plants the utilities have to go to natural gas.

I had interpreted that as to meaning a major reason plants are moving to natural gas is because of this regulation, to which I was suggesting to be careful of giving the EPA too much credit in the Shale Revolution. I apologize if I had misinterpreted your comment.

 
At 4/29/2012 9:00 PM, Blogger VangelV said...

I had interpreted that as to meaning a major reason plants are moving to natural gas is because of this regulation, to which I was suggesting to be careful of giving the EPA too much credit in the Shale Revolution. I apologize if I had misinterpreted your comment.

You read it right but misinterpreted what I mean. Yes, the EPA is driving power production away from coal and towards natural gas. That is not a good thing. The utilities should compete for customers by deciding what to build on their own. Let them operate and build coal plants or build nuclear plants and you will see the share of natural gas fall again not because of current prices but the inability to secure a cheap supply over long periods of time.

 
At 4/29/2012 9:01 PM, Blogger Jon Murphy said...

Ah, mea culpa

 

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