U.S. rotary rig count: U.S. operators finally respond to elevated crude prices

Despite rising interest rates and fear of an economic recession, WTI surged to a 15-year high of $114.84/bbl in June 2022, as the war in Ukraine continued to restrict Russian supply and fueled global unrest. Operators finally responded by ramping-up drilling activity in the Lower-48 after showing considerable restraint for several years following WTI crude prices crashing into negative territory on April 20, 2020.  

During the Covid event and subsequent ESG push, U.S. shale operators remained disciplined, with capital expenditures and most companies focused on funneling free cash flow into share buybacks, dividends and debt reduction, rather than drilling new wells. However, this trend started to change, especially in the second half of 2022.   

Activity: 2022 versus 2021. The average U.S. rig count for 2022 was 723 units, a 51.3% increase compared to the previous year’s average of 478. The first week of January, the rig count was 588, and it gained for 24 consecutive weeks to hit 753 in the last week of June. The count hovered around 762 rigs for the next four months before hitting a peak of 784 units in late November and finishing the year at 779. 

The four major oil-producing states/regions enjoyed sizeable gains in activity, with Texas shooting up 54%, to average 347 rigs in 2022. All of the state’s 12 RRC districts experienced an increase in activity. In the Permian, RRC District 8 was up 43% (192 wells) and RRC District 7C (+36%) experienced a gain in activity. In the Eagle Ford, District 1 surged 97% to average 27 rigs in 2022, 13 more than in 2021. District 2 experienced a 54% gain, up to a yearly average of 24 rigs, with South Texas District 4 up a whopping 139%. 

In gassy District 6, operators working the Haynesville upped activity 64% to average 25 wells in 2022. However, the region’s DUC count increased 229 wells, a 61% increase as HH gas price plummeted $5.54/MMBtu since hitting an August high of $8.81/MMBtu and then dropping to just $3.27/MMBtu in January, a 63% decline. 

In New Mexico, operators seeking to capitalize on higher oil prices upped activity 36% in the southeastern portion of the state, while Louisiana and its federal offshore increased 32% to average 45 active rigs during 2022. In North Dakota, mature wells are producing more gas than expected and hampering crude output in the Bakken. Despite the deteriorating crude output, operators increased drilling in the state 93% to average 35 rigs in 2022, 17 more than in 2021. The increased activity pushed the Bakken’s DUC tally up 16%, to a total of 458 wells as of December 2022. Drilling activity in Oklahoma shot-up 102% to average 59 rigs, followed by Wyoming (+79%) and a 65% increase in Colorado, which averaged 18 rigs in 2022.  

Natural gas regions. In the northeastern U.S., operators working the Marcellus-Utica plays also increased activity, but at a lower rate than in crude producing regions. Despite the collapse in gas price in the second half of 2022, Pennsylvania was up 30%, to average of 24 rigs in 2022, with West Virginia and Ohio increasing rig utilization 30% and 21% respectively, in 2022.  

U.S. DUC count. The increased activity has caused a build-up in the DUC inventories in the gas-rich regions during the last 12 months. According to the December 2022 tally by EIA, the DUC total stood at 4,577, a reduction of just 39 wells since December 2021. However, in the Permian basin, operators have completed 377 DUC wells on a y-o-y basis, a reduction of 26%. Operators working the Eagle Ford have managed to slash DUCs in that region 30%, from 724 down to just 508 wells.  

Target/trajectory split. The HH spot price for natural gas averaged $6.45/MMBtu in 2022, $2.56/MMBtu higher than averaged in 2021. The market for U.S. LNG increased in Europe when supply issues, exacerbated by the war in Ukraine, created a unique set of economic, geopolitical and trade policies that triggered significant disruption in the broader energy market. The interruption of energy trade between Europe and Russia has driven global natural gas markets to new highs, reaching six to ten times U.S. HH prices. But a warmer than expected winter in Europe and the U.S. caused a dramatic price drop during the second half of 2022.  

U.S. drilling split by target.

U.S. drilling split by trajectory.

However, the ratio of rigs targeting gas versus those drilling for crude remained relatively steady in 2022, with a few exceptions. In January, approximately 82% of rigs were targeting oil, with 18% drilling for gas. A surge in gas drilling occurred during the week of Sept. 9, when rigs seeking gas spiked at 22%. By December, the proportion of rigs seeking gas was back down to approximately 20%.  

In 2022, the split between trajectories remained relatively stable throughout the year. Similar to previous years, horizontal drilling accounted for the vast majority of wells drilled. During 2022, approximately 90% of all wells drilled in the U.S. were horizontal, with the remaining 10% essentially split between directional and vertical wells.