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Resilient Fracking
Another Sign Shale Is Rebounding

If, as the old saying goes, two out of three ain’t bad, then five out of six has to be verging on being downright good. That’s welcome news for the embattled American shale industry, which has seen the number of active rigs currently in operation increase for five of the last six weeks. Frackers have had to endure a price collapse that at one point sent the cost of a barrel of oil below $28 per barrel, but now that prices have seemed to stabilize around $50 per barrel, all signs are pointing towards a rebound. Reuters reports:

Drillers added 10 oil rigs in the week to July 8, bringing the total rig count up to 351, compared with 645 a year ago, energy services firm Baker Hughes Inc said.

Before this week, drillers added oil rigs in only five out of 26 weeks this year, cutting on average eight rigs per week for a total of 195. Last year, they cut 18 rigs per week on average for a total of 963, the biggest decline since at least 1988.

After slumping from 1,609 rigs in October 2014 amid the biggest oil price rout in a generation, the rig count started to inch up in June as U.S. crude futures hovered around the key $50-a-barrel level that analysts said would trigger a return to the well pad.

The rig count was closely tracked these last two years as a bearish crude market slowed and eventually curbed the shale boom, but it shouldn’t be considered a perfect metric. When faced with a cash crunch, drillers will naturally shut down their least productive rigs first while leaving the real gushers in place, so the drop in rigs didn’t tightly track with a drop in overall production.

That said, it’s undoubtedly good news that the rig count is once again rising. It’s a sign that, should prices hold, the worst is over for U.S. shale. Analysts expect the rig count to continue to rise, too, topping 600 next year and averaging just shy of 1,000 in 2018. Step one for rekindling the shale revolution is drilling more wells, and five of the last six weeks we’ve seen evidence of just that.

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  • Kevin

    The bigger story is whether the Saudis have decided to switch tact and cut back on production a bit and drive up prices. There seem to be hints they are moving in this direction. Combining with issues affecting output in places like Nigeria and Venezuela, this could lead to a tightening in the prices for crude (partially disguised by a strong dollar), which could be why the rig counts are going up… Frackers will be tempted to increase future production if they think prices are heading up – in my view the rig count numbers are a symptom of rising expectations of future prices.

  • Jacksonian_Libertarian

    One of the biggest reasons for the fall in the number of rigs is the new method of drilling multiple wells (as many as 50) from one site, with the new “Walking Rigs”. So taking rig counts as an indication of oil industry health is very deceptive, and it would be better to follow how many wells are being fracked.

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