After reading comments from OilPro about Halliburton conference call, it seems like the scenario for the oil and gas industry is as follows:
• The production budgets have been spent. Look for less activity in the 4th quarter and the rig count increasing. Both Halliburton and OilPro think the on land rig count get down to 600 by the end of the year.
• With the start of the New Year in 2016, drillers will have new production budgets which means drilling will pick up. The common strategy for the E&P companies is “drill or die” which means they will be drilling once the new budgets go into effect.
• Here’s comments
• The projected low rig count should mean that the price of oil should move up a little. Let’s hope so.
Here’s an interesting perspective from Dave Lesar from OilPro.
“I think there’s actually a different way you need to think about the customer base in North America, especially the independent customer base. And that’s essentially with the high decline curves that exist on these unconventional plays; they really are in drill or die mode. So if you go a year without drilling a well and your production starts to turn over, you’re going to have to start drilling or else you’re going to have to take your infrastructure apart that you’ve built up as a company. So I think that as we get to the end of the year, if these guys have money, they’re going to drill it up, and that’s just the fact of the matter. But I think that the real key is going to be the production declines you see and when these companies get to the point where they have to start drilling or they have to start dismantling their companies, and they’re not going to want to do that.”
Drill or die means US production could defy play economics, a concept we’ve written about, saying the US E&Ps are better named the “grit squad” rather than the “swing producer.” The tough choice of drill or dismantle could buffer US oilfield activity against low oil prices next year as operators continue to spend (albeit at lower levels than in 2015) on drilling. But this “padding” may only delay the kind of real oil production response needed for the global oil market to heal.
In the meantime, buckle up for a tough end to the year if your business is leveraged to the US onshore oilfield.