BH Rigs Week of Sept. 28: Frac spreads recover, rigs flat

  • Oil rigs declined, -3 to 863

  • Horizontal oil rigs rose, +2 to 769

  • The 4 wma change for horizontal oil rigs rose to +0.75 / week

  • Horizontal oil rig gains look better than the underlying reality because the Cana Woodford recovered from last week, +7 after -6 last week. Thus, the underlying trend is probably marginally negative.

  • The breakeven oil price to add horizontal oil rigs remains $70 WTI, allowing for the one-off nature of Cana Woodford gains

  • Frac spreads recovered strongly this week, +10 to 464. The spread ratio is returning to more normal levels and at the current pace should recover completely in the next two weeks.

  • The Midland – WTI spread is closing rapidly, suggesting that bottlenecks are easing in the Permian. (Slide 7.)

  • We expect rig counts flat to down for the next few weeks with recovering frac spreads.

  • If the Midland – WTI spread closes as the futures curve suggests, Permian rig counts could start to rise again, perhaps from mid-to-late October.

Baker Hughes Rig Count Sept. 28, 2018