US oil rigs increase by two as drillers prop up vertical units

HOUSTON — U.S. drillers put two oil rigs back to work this week, Baker Hughes said Friday, marking the rig count’s fifth consecutive weekly gain.

That brought the nation’s fleet of oil rigs up to 674, up by 46 from the rig count’s lowest point of the year in late June. The nation’s gas-drilling rigs stayed the same at 211. Texas’ overall rig count slipped by five.

Three oil rigs were propped up in the Williston Basin in North Dakota, and drillers in the Haynesville in Louisiana, the Granite Wash in the Texas Panhandle and the Cana Woodford in Oklahoma increased their oil rig fleets by a combined four. But two tight oil plays, the Permian Basin in West Texas and the Eagle Ford in South Texas, together sidelined eight rigs.

Baker Hughes’ data also shows that in recent weeks drillers have been propping up vertical-drilling rigs. Those units have climbed from their lull of 99 in early June to 130 on Friday, boosting the share of vertical rigs in the U.S. market from 11.4 percent to 14.7 percent. In that same time, active horizontal drilling rigs have increased by four.

That suggests that the rigs being sent back to the field aren’t chasing oil that’s trapped in shale rock, but rather in conventional sandstone or carbonite reservoirs. They’re the kind of formations the industry has drilled for a century, but that lost their luster in the last decade with the advent of shale formations in Texas and North Dakota. There, operators can benefit from lower drilling costs — about a third of the cost of horizontal shale drilling — and a longer life-span for their wells. Shale wells deplete rapidly, by up to 80 percent in one year, which is unattractive when oil prices are hovering around $40 a barrel.

Though conventional reservoirs are “not as sexy” as shale, “your costs were low and in the end it’s probably higher upside and it makes more sense when oil is $40 a barrel,” said Phillip Blower, a land manager at Whitmar Exploration Co. in Denver, during the North American Prospect Expo on Thursday.

So why are some rigs coming back online while the price of crude drops? The increase may not last long. But some of the gains may be coming from small oil companies that hedged their production in May and June, when oil was around $60 a barrel, said Wil Harris, senior vice president at oil adviser Asset Risk Management, which helps small oil producers lock in prices for their future oil output.

“We had an extremely busy May and June when we started rallying. It was stable and you had a forward curve that was sloping upward so you could hedge at $65,” Harris said. “It was survival hedging.”