The US oil and gas rig counts going into 2011 are a clear signpost that the growth of unconventional oil and gas exploration and development here at home are the foundation for a rational national energy policy that is market driven. The question is whether the market can demonstrate it is working before the government figures out how to frustrate it with politics and a failed energy industrial policy of picking politically correct winners and losers.
Baker Hughes (BHI), the Houston-based oil services firm’s U.S. rig count has benchmarked changes in the number of rigs searching for oil and gas in the country since 1944. The U.S. began 2011 with 1,700 rigs, up 480 from 2010 and 94% higher than the June 12, 2009 low of 876. The current 1700 rig count still trails the 22-year peak rig count of 2,031 rigs set in week of August 29 and September 12, 2008.
The year over year rig count story breaks down as follows:
Land rigs began 2011 at 1661 up 494 rigs year over year from 1167 in 2010.
Offshore rigs began 2011 at 25 down -17 from 42 year over year in 2010.
Inland water rigs are 14 up 3 from the 2010 count of 11.
Natural gas rigs are 914 up 133 from year ago 2010 count of 781.
Oil rigs are 777 up 350 rigs from the year ago count of 438.
Geothermal rigs are 9 down 3 from the 2010 year ago count of 12.
Vertical rigs are 523 up 85 year over year from 438.
Directional rigs are 211 up 12 year over year from 199.
Horizontal rigs are 966 up 383 rigs year over year from 583
Exploration rigs are 4 down 1 year over year
Development rigs are 1697 up 481 year over year from 1216
This is continuing signpost of the growth of unconventional oil and gas E&P activities on land across North America that uses horizontal drilling techniques to reach the ribbons of oil and gas shales and tight rock formations. The lack of offshore and inland water rig growth reflects the impact of the Obama Administration efforts to slow or halt drilling in the aftermath of he BP oil spill.
Rigs Chasing Higher Oil Prices and Avoiding Low Gas Prices
Rising oil prices and low natural gas prices are flipping the use of rigs toward oil in order to maintain rig profitability. Oil rig count was up by 12 to 777 up from 427 last year coming back from a low of 179 in June 2009. Gas rig count fell to 914 down 5 rigs from the previous week continuing a fifth straight week of declining counts and down 8% from the 18-month high of 992 hit last August. The current gas rig count is 43% below its peak of 1,606 in late summer 2008 but above its 7-year low of 665 on July 17, 2009. YOY gas rigs have grown from781 active natural gas rigs last year to the current 914 rigs.
Horizontal Drilling is Overtaking Traditional Vertical Drilling
Vertical rigs were down 12 to 523, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) rose by 18 to 1,177.
The horizontal technology and experience continues to grow as evidenced by the rig count growth overall and the maximum depth/length of drilling with the horizontal drilling more than 20,000 feet increasing year over year more than 72% twice the rate of shorter drilling categories.
America’s National Energy Policy ‘Work-Around’ Emerges
The US government and many states have a de facto energy policy of frustrating national energy production from domestic sources. So America has developed a new de facto “work-around” national energy policy of expanding domestic oil and gas production from unconventional sources as fast as we can as many places as we can.
For many reasons not the least of which are deficit reduction from fewer oil imports and improved US energy security, the US government should get out of the way and let it happen.
As oil prices rise with inflation and economic insecurity growing domestic production keeps dollars at home. Low natural gas prices are shifting the current focus on E&P to oil production, but lower gas prices also support the return of domestic manufacturing and represent the only clear policy choice for reducing greenhouse gas emissions from coal fired generation.
This is far from a complete national energy policy but the market is doing what the government has been unable to do—give us a rational energy policy that actually works and puts people to work at the same time.