According to Baker Hughes, energy firms across America have added rigs intended for drilling. This marks the second time rigs have been added since the start of 2016. The statement from Baker Hughes was made on Friday and followed crude’s seven-month high of more than $50 per barrel over the last two weeks.
Producers and analysts have specified this price level as crucial to activating a return to the well pad. Baker Hughes reported drillers adding 9 rigs the week of June 3. This addition brings the total rig count up to 325 in comparison to the 642 on count just a year ago.
Before this week, only one rig had been installed so far this year. That rig was installed the week of March 18. On average, energy companies had cut 10 oil rigs a week, totaling about 220 this year alone. In 2015, an average of 18 rigs were cut each week or 963 rigs total. These cuts were the most on record since 1988 in the midst of a major collapse in crude prices. The rig count has fallen since hitting its peak count of 1,609 rigs in October 2014. The peak occurred as US crude futures dropped over $107 per barrel in the middle of 2014, but then fell to a nearly 13-year low of $26 back in February.
US oil futures have increased about 90 percent since then, smashing the $50 mark made earlier in the week. However, oil prices were aimed to assume a 1 percent loss this week. This prediction was made over early signs that the market was moving to a more stable supply and demand after a chain of disruptions in the supply. This stopped three successive weeks of price gains.
Crude futures are accumulating almost $50 for the 2016 balance and more than $51 for 2017. US oil analysts and execs have reported that any price increase over $50 could incite a revival in new drilling projects.
Claims made by analysts at Raymond James this week said that rig count is either at or near the bottom. A small recovery for the back half of 2016 is also estimated to be in the cards. Raymond James, an American financial services firm, actually cut its projected 2016 exit number from 700 to 625. They claimed the efforts of energy firms to finish drilled, but uncompleted wells (known as DUCs) would hinder the rig count from growing much higher this year. Credit Suisse analysts predict the American rig count to average about 470 this year, 600 in 2017, and 718 in 2018.
Article written by HEI contributor Briana Steptoe.
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Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
Headlines of the week
Midstream & Downstream
Global liquid fuels
Electricity, coal, renewables, and emissions
2018 was a year that started with crude prices at US$62/b and ended at US$46/b. In between those two points, prices had gently risen up to peak of US$80/b as the oil world worried about the impact of new American sanctions on Iran in September before crashing down in the last two months on a rising tide of American production. What did that mean for the financial health of the industry over the last quarter and last year?
Nothing negative, it appears. With the last of the financial results from supermajors released, the world’s largest oil firms reported strong profits for Q418 and blockbuster profits for the full year 2018. Despite the blip in prices, the efforts of the supermajors – along with the rest of the industry – to keep costs in check after being burnt by the 2015 crash has paid off.
ExxonMobil, for example, may have missed analyst expectations for 4Q18 revenue at US$71.9 billion, but reported a better-than-expected net profit of US$6 billion. The latter was down 28% y-o-y, but the Q417 figure included a one-off benefit related to then-implemented US tax reform. Full year net profit was even better – up 5.7% to US$20.8 billion as upstream production rose to 4.01 mmboe/d – allowing ExxonMobil to come close to reclaiming its title of the world’s most profitable oil company.
But for now, that title is still held by Shell, which managed to eclipse ExxonMobil with full year net profits of US$21.4 billion. That’s the best annual results for the Anglo-Dutch firm since 2014; product of the deep and painful cost-cutting measures implemented after. Shell’s gamble in purchasing the BG Group for US$53 billion – which sparked a spat of asset sales to pare down debt – has paid off, with contributions from LNG trading named as a strong contributor to financial performance. Shell’s upstream output for 2018 came in at 3.78 mmb/d and the company is also looking to follow in the footsteps of ExxonMobil, Chevron and BP in the Permian, where it admits its footprint is currently ‘a bit small’.
Shell’s fellow British firm BP also reported its highest profits since 2014, doubling its net profits for the full year 2018 on a 65% jump in 4Q18 profits. It completes a long recovery for the firm, which has struggled since the Deepwater Horizon disaster in 2010, allowing it to focus on the future – specifically US shale through the recent US$10.5 billion purchase of BHP’s Permian assets. Chevron, too, is focusing on onshore shale, as surging Permian output drove full year net profit up by 60.8% and 4Q18 net profit up by 19.9%. Chevron is also increasingly focusing on vertical integration again – to capture the full value of surging Texas crude by expanding its refining facilities in Texas, just as ExxonMobil is doing in Beaumont. French major Total’s figures may have been less impressive in percentage terms – but that it is coming from a higher 2017 base, when it outperformed its bigger supermajor cousins.
So, despite the year ending with crude prices in the doldrums, 2018 seems to be proof of Big Oil’s ability to better weather price downturns after years of discipline. Some of the control is loosening – major upstream investments have either been sanctioned or planned since 2018 – but there is still enough restraint left over to keep the oil industry in the black when trends turn sour.
Supermajor Net Profits for 4Q18 and 2018
- 4Q18 – Net profit US$6 billion (-28%);
- 2018 – Net profit US$20.8 (+5.7%)
- 4Q18 – Net profit US$5.69 billion (+32.3%);
- 2018 – Net profit US$21.4 billion (+36%)
- 4Q18 – Net profit US$3.73 billion (+19.9%);
- 2018 – Net profit US$14.8 billion (+60.8%)
- 4Q18 – Net profit US$3.48 billion (+65%);
- 2018 - Net profit US$12.7 billion (+105%)
- 4Q18 – Net profit US$3.88 billion (+16%);
- 2018 - Net profit US$13.6 billion (+28%)