The Shale Rebound
US Shale Producers End 2016 on High Note

The number of active U.S. oil rigs closed out 2016 by hitting its highest number since December of 2015. If you were to graph the American rig count last year, it would look something like a U, as producers were forced to sharply cut back on operations in the wake of the collapse in oil prices over the past two and a half years. But that only accounts for half of the story, because as shale producers grew accustomed to the low-price environment—and, it should be said, innovated new ways to stay profitable even as oil dropped below $50 per barrel—the rig count started to creep back up. After the November announcement of petrostate producers’ decision to cut production, oil prices have started to climb once again, and the American rig count has grown accordingly. Reuters has more:

Since crude prices recovered from 13-year lows in February to around $50 a barrel in May, drillers have added a total of 209 oil rigs in 28 of the past 31 weeks, fueled by prices climbing to near 17-month highs.

The Baker Hughes oil rig count plunged from a record 1,609 in October 2014 to a six-year low of 316 in May as U.S. crude collapsed from over $107 a barrel in June 2014 to near $26 in February 2016. […]

Analysts said they expect U.S. energy firms to boost spending on drilling and pump more oil and natural gas from shale fields in coming years now that energy prices are projected to keep climbing. The total oil and natural gas rig count ended 2016 at 658, down 6 percent from the 698 at the finish of 2015.

When the rig count first started to tumble, we warned against reading to much into it as an accurate metric for assessing the health of the American oil industry. That’s because the first rigs to be brought offline were naturally the worst performing and highest cost of the bunch, which meant that the rigs that did survive were the most productive. It was, in effect, a culling of the herd, and the disparity of cost and output from rig to rig means we can’t view the total count as a reliable measure of our country’s total oil output. After all, the rig count shrank by 80 percent over a 19 month period, but U.S. oil production fell less than 2 percent over that same stretch.

Still, the fact that the overall rig count has grown 28 of the past 31 weeks can’t be read any other way than as a good sign for U.S. shale. All year long we’ve been observing green shoots in America’s hydrocarbon landscape, and output is up almost 300,000 barrels per day since mid-October. While OPEC and the rest of world’s oil-soaked regimes are busy reducing production to help inflate prices, U.S. producers are gearing up for the second phase of the shale boom, and they’re doing so armed with a variety of new, more efficient drilling techniques. 2017 is shaping up to be a banner year for American energy prospects.

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