Rig count falls as seasonal slowdown meets lower crude prices

HOUSTON — Oil and gas drillers idled more rigs last week, as crude prices fell to their lowest levels in five years on Monday.

In the week ending Dec. 26, Baker Hughes’ count of oil rigs actively looking or drilling for oil has fallen to 1,499, down 37 from last week and off 110 from an October high of 1,609. Rigs drilling for gas were up by two to 340.

Texas’ active total onshore active rigs fell to 851 from 867 the week before and down 54 from a recent high of 905 at the end of November.

RigData, which also compiles information about the number of active rigs drilling onshore in the U.S., showed a similar decline.

RigData’s information showed a working rig count of 1,939 for the week ending Dec. 26. That count is down from a late October high of 2,122 and last week’s count of 1,973. RigData’s working rig count includes rigs drilling nonproducing wells, such as ones for wastewater disposal.

Analysts and industry watchers have been expecting a sharp cutback on the number of rigs drilling, thanks mostly to falling price of crude oil. One estimate by financial services firm Raymond James had the count falling by as many as 550 rigs.

But exactly when the slowdown will begin in earnest isn’t clear. Falling commodity prices can take as much as six months to affect the number of rigs drilling for gas, thanks to commodity price hedges and long-term contracts for rigs.

In addition, producers usually pare back the number of rigs they use toward the end of the year. On Monday, there were differing views about whether the expected pullback had begun.

In a note to clients about the RigData , energy investment bank Tudor, Pickering, Holt & Co., LLC said that the rig count usually falls off by about 5 percent on average toward the end of the year. Analysts at Tudor Pickering attributed the decline above of that percentage to the falling oil prices.

“The big U.S. drilling activity slowdown has started,” Tudor Pickering analysts wrote in a note to clients. “We expect significant declines to continue as 2015 gets started with no post-holiday bounce back.”

Trey Cowan, an analyst with RigData, said that crude prices hadn’t yet had time to have a large effect on the rig count. Producers should begin to cut drastically early in 2015, he said.

“It’s no different than any other year yet, but there’s a lot of nervousness out there,” he said. “It’ll be easier to tell once we get a couple weeks data in January.”

Well permits, another indicator of future drilling activity, have also begun to decline.

Last week, the Texas Railroad Commission —  the state’s oil and gas regulator — said it issued 1,376 permits to drill new wells in November. In October, the regulator issued 3,046 permits for new wells.