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Shale Still Hale
U.S. Shale Showing Signs of Stabilizing

The fall in the price of oil over the last year has put the squeeze on high-cost producers, and American shale companies certainly fall into that category. But as the WSJ reports, the industry’s rig count suggests frackers are approaching some sort of equilibrium:

The number of U.S. oil drilling rigs—a proxy for activity in the oil industry—has fallen sharply since prices headed south last year. There are now about 59% fewer rigs working since a peak of 1,609 in October.

But the rate of decline has slowed in recent weeks, and some shale oil companies are expecting to add rigs in the coming months if prices stabilize near the current levels.

It should be noted that rig counts don’t provide an entirely accurate picture of the health of the drilling industry. As producers have gotten more experience with fracking shale, they’ve begun drilling more wells per single rig (one of the benefits of horizontal well drilling). Additionally, the rigs being decommissioned are typically the least productive—essentially the oil price plunge has forced the industry to trim the fat.

That said, the precipitous drop—nearly 60 percent since last October—in the number of active American rigs does tell us that the U.S. shale boom is slowing in today’s bearish market. The fact that the rate of the rig count drop has slowed recently could mean that fracking firms are adjusting to discount prices as they innovate their way to profitability even on lower margins.

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  • Jacksonian_Libertarian

    Drilling is cyclical, as winter is a bad time to drill in the Northern states like North Dakota, while Texas can drill year around, and the same goes for fracking which requires that water not be frozen. Taking these facts into account, the number of rigs always declines in the winter and increases in summer, and the fracklog (fracking backlog) does the same. How much the price of oil has impacted these numbers is still uncertain as this is the first summer after the fall in oil prices last fall and the industry has yet to stabilize and a full cycle has yet to occur.

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