First oil

Back in February, we predicted that the U.S. would drill 12,908 wells this year, an 11.5% increase over 2020’s 11,581-well total. Now, three months later, we believe that our U.S. forecast will be realized, and it could be exceeded—by how much remains the question.

Last year’s Baker Hughes rig count averaged 432.9 units over 52 weeks. So, for the first 19 weeks ending May 14, the count is averaging 410.3 active rigs. The May 14 number was 453. If the count remained steady at 453 for the rest of the year, then the annual average would be 437.4, or 4.5 rigs above the 2020 average. This would result in about 11,700 wells being drilled, or slightly higher than 2020’s figure, but 1,200 wells short of our forecast.

We obviously don’t think that’s going to happen. We expect slow-but-steady growth in the U.S. count to continue through December. If U.S. rigs can average 525 units over the remaining 33 weeks past May 14, then the entire-year average would be 483. This would be enough to realize our forecast. If only four rigs are added each week, that would be another 132 rigs, or a figure of 585 by year’s end.

Drilling permits bolster U.S. outlook. On May 12, our friends at Evercore ISI, led by James West, released their latest monthly compilation of U.S. drilling permit figures, which supports our forecast. They said that the U.S. drilling permit count bounced back in April, as month-on-month activity grew 19% from the March figure and is now up 13% versus the same time last year. The DJ-Niobrara surged to 117 permits from 3 in March (+114). Other notable activity occurred in the Marcellus shale (+67%, or +62 permits), the Bakken (+42%, +20 permits), Oklahoma’s Granite Wash play (+248%, +19 permits) and Wyoming’s Powder River basin (+55%, +19 permits).

A tale of two opposites. IEA Executive Director Fatih Birol seems to be getting more radical by the month. The latest case in point is his declaration that “no investment in new fossil fuel supply projects is needed,” from today forward. This statement is part of a list of “key take-aways” from IEA’s latest “special report,” Net Zero by 2050: A Roadmap for the Global Energy Sector.

Birol’s stance, however, would increasingly concentrate oil and gas output in a small number of low-cost producers, largely in OPEC and the periodically unstable Middle East. This scenario has grave implications for U.S. producers, as well as energy security in the U.S. and various other countries. But does a bureaucrat like Birol really care?

Meanwhile, Texas Railroad Commissioner Wayne Christian has taken a completely opposite stance. As Vice-Chair of the Interstate Oil & Gas Compact Commission (IOGCC), Christian recently authored, and convinced the IOGCC to pass, three resolutions to “protect states’ rights, protect consumers, and encourage technological innovation in the oil and gas industry.” Resolution 21.052, Opposition to the CLEAN Future Act, was co-sponsored by Texas and North Dakota. On behalf of oil and gas producing states, it asks the Biden Administration and Congress to oppose the CLEAN Future Act and other similar legislation.

Resolution 21.054, Reigning in ESG-style Investing, asks federal officials to formulate and enforce regulations relating to Environmental, Social, and Governance Funds, “to keep activists from forcing divestment in oil and gas without regard to the rate of return for beneficiaries.” Finally, Resolution 21.055, Encouraging Carbon Capture and Technological Innovation, acknowledges “the key role that technological innovation, including carbon capture, has played in U.S. environmental progress and encourages the federal government to act in a bipartisan manner to continue encouraging this progress.” Regarding 21.054, Christian explained, “We cannot allow activist investors to harm the investment and retirement portfolios of our constituents as collateral damage in their war against fossil fuels.”

About the Authors

Kurt Abraham

World Oil

Kurt Abraham kurt.abraham@worldoil.com