August 19, 2016 – Wall Street Journal
Today’s the Day for the Metric Energy Traders Love to Hate
By: Nicole Friedman
In today’s oil market, the rig count is closely watched and universally despised.
Every Friday afternoon, oilfield-services firm Baker Hughes Inc. publishes a weekly count of rigs drilling for oil and natural gas in the U.S. Traders and investors pay attention because it is the most up-to-date and forward-looking data available in the market.
But it’s also some of the most confusing to interpret.
For one thing, a rig does not produce oil or natural gas. Rigs drill wells, and those wells might eventually produce oil or gas, but they also might come up dry, or a company might wait months or years between drilling a well and pumping anything out of it.
What’s more, rigs are not created equal. A rig today is cheaper and more productive than a rig was a few years ago, as drilling technology has improved and a slumping oil market has forced oilfield-service companies to slash their prices. An average rig in North Dakota’s Bakken region resulted in 840 barrels a day of new production in July, up from 489 barrels a day in December 2014, according to the Energy Information Administration.
Even if two rigs are exactly the same, they might be placed in very different spots. Oil producers have rushed to drill their most-productive land in the last two years, while removing rigs from more peripheral fields. Sixty percent of the rigs in the U.S. are located in just 20 counties, Rusty Braziel of RBN Energy said on the Columbia Energy Exchange podcast this week.
When oil prices started falling in late 2014, many market watchers expected a drop in the number of active rigs to cause a decline in oil production. They were proven wrong. While U.S. oil output has fallen, it has done so much more slowly than many expected.
Read the full story here: http://blogs.wsj.com/moneybeat/2016/08/19/todays-the-day-for-the-metric-energy-traders-love-to-hate/
