Energy rigs advance as crude oil prices prompt more drilling

By Lynn Doan and Christine Harvey
Bloomberg News

Oil and gas rigs in the U.S. advanced to a four-month high as drillers moved to take advantage of rising prices.

The count rose by six to 1,776, according to Baker Hughes Inc., a Houston-based field services company, the most since March 15 and the fourth increase in a row. Oil rigs rose six to 1,401. Gas rigs maintained their week-ago level of 369, a three- month high.

Rising output from shale formations such as North Dakota’s Bakken and Texas’s Eagle Ford boosted domestic oil production to a 22-year high last week, according to the Energy Information Administration. Crude rose to a 16-month high of $109.32 a barrel in intraday trading on July 19.

“Oil prices are a lot higher and have been rising,” James Williams, president of WTRG Economics, said in a phone interview from London, Arkansas. “You get a better return on your investment if you drill when prices are high.”

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West Texas Intermediate oil for September delivery dropped 79 cents, or 0.7 percent, to settle at $104.70 a barrel on the New York Mercantile Exchange, up 17 percent in the past year.

U.S. oil output climbed to 7.56 million barrels last week, the most since December 1990, according to the EIA, the Energy Department’s statistical unit. Stockpiles slipped to 364.2 million barrels.

Capital Spending

Oil prices are well above levels at which exploration and production companies would consider significantly raising their capital spending in the second half of this year, James C. West, oil services and drilling analyst for Barclays Plc’s investment- banking unit in New York, said in a research note July 23.

“We think recent positive data regarding U.S. land activity is a clear signal to the market that operators are putting capital to work and a sustained uptick in activity is under way,” he said.

Natural gas for August delivery retreated 8.9 cents, or 2.4 percent, to $3.555 per million British thermal units on the Nymex. The price is up 14 percent in the past year.

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U.S. gas stockpiles gained 41 billion cubic feet last week to 2.786 trillion, smaller than the five-year seasonal average increase of 53 billion, the Energy Information Administration said yesterday. Supplies were 12.5 percent below year-earlier levels.

Directional rigs targeting oil and gas, typically used to drill multiple wells on the same pad, increased by seven to 287, according to Baker Hughes. Horizontal drilling rose nine to 1,067, while vertical drilling dropped 10 to 422.

Oklahoma Leads

Oklahoma rigs jumped the most this week, adding five to 176. Texas followed with an increase of three rigs to 848, the data showed. Colorado added two. North Dakota lost three.

Producers in the Bakken formation create wells by directionally drilling through underground formations and then shooting high-pressured bursts of water mixed with sand and chemicals to release trapped hydrocarbons.

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Rigs on land added five to 1,696, an 11-week high. Offshore rigs climbed by one to 58. Rigs in inland waters and in the Gulf of Mexico were unchanged at 22 and 54, respectively.

“We are increasingly confident that the U.S. land recovery is poised to accelerate in the second half of the year,” West said. “Demand for well services has been stealthily increasing in recent months.”

Oil and gas rigs in Canada gained five to 329, according to Baker Hughes.

With assistance from Dan Murtaugh in Houston.