A lot fewer oil and natural gas rigs in action in the US, but it isn’t showing up in production numbers

The overall US land rig count has fallen nearly 13% in the past year, due to a combination of low natural gas prices and efficient drilling. But the largest oil producing states have seen drops in their individual onshore rig counts that are less steep — in some cases far less, according to the latest Baker Hughes data.

The number of land rigs working last week nationwide totaled 1,712, down from 1,965 in the last week of 2011, according to Baker Hughes’ weekly rig count, which comes out every Friday and was last issued December 28. 

But not all states were equal when it came to declining rig counts. 

For example, Texas — which by far has the largest number of land rigs employed than any other state — experienced roughly a 10% decline in its land rig count, from 914 a year ago to 821 last week, the data said.

Oklahoma registered a bare blip of a rig drop through 2012 — 6%, from 195 to 183 rigs in the same time frame, while land rigs in booming North Dakota slipped just over 4% during 2012 to 174. Meanwhile, Utah barely blinked an eye as its rig count lightly exhaled from 31 a year ago to 29 last week, and Kansas in the same time span teetered ever-so-slightly from 32 to 31 rigs.

However, Louisiana and Arkansas were not so lucky. Each experienced a 50% decline in land rig counts in the past year. Louisiana ended 2011 at 112 rigs but will end 2012 at 56 rigs.

Same goes for Arkansas, with 30 rigs a year ago but 15 last week. Likewise, Pennsylvania’s rig count dropped 38% in the past year to 70 last week.

It all came down to whether you were oily or gassy, analysts say. The states registering the larger rig count decreases are those where large deposits of natural gas prevail:  Louisiana, which boasts the Haynesville Shale; Arkansas which  hosts the Fayetteville Shale, and Pennsylvania, which is home to the massive Marcellus Shale. And with gas prices low, upstream operators have moved away in droves from drilling the commodity; the US gas rig count dropped nearly in half, from 809 a year ago to 431 last week. 

On the other hand, Texas encompasses two large oil plays — the Eagle Ford Shale in South Texas and the Permian Basin in West Texas. And North Dakota is host to the buzzing Bakken Shale which operators continue to expand; production in the play increased 36% in the first 10 months of 2012 to more than 747,000 b/d in October, statistics from the North Dakota Department of Mineral Resources’ Oil and Gas Division show.

But there’s a subtext to this story.

Of the total 1,763 rigs working in the US both onshore and offshore last week, 1,327 were oil-directed, which is actually up from 1,193 a year ago. However, the more interesting number is the 7% that the US oil rig count has dropped from its August high of 1,432.

In oil-producing states, reasons for declining rig counts appears different than states with gas plays. The fall in the number centers on the substantial technological improvements in recent years that allow operators to do more work with fewer rigs, analysts say. 

“The vast improvement in drilling efficiency has caused rig-count comparisons between now and prior periods to become less meaningful,” Doug Sheridan, managing director of EnergyPoint Research, said recently.

Essentially, the change came from rigs that allow faster movement between wells or to drill more wells from a given area without having to move at all. That, coupled with technologies such as horizontal drilling, longer laterals (the length of horizontal well drilled) and hydraulic fracturing that tease out more hydrocarbons per well has made all the difference, Sheridan said in a recent interview with Platts. 

The drops in oil rig counts haven’t hurt production, either. As noted, North Dakota’s output acted like just-uncorked champagne in 2012. Further south, Texas oil production rose from 1.736 million b/d in January to 2.1 million b/d in October, according to US Energy Information Administration data, as did that of Oklahoma, rising from 224,000 b/d to 264,000 b/d in the same time frame. And smaller oil-producing states such as New Mexico, Wyoming and Colorado registered percentage increases in the high single-digits to low double-digits.

“Compared to three or four years ago, industry was really not that focused on doing things more efficiently,” Sheridan said.

He noted the efficiency trend really began with Helmerich & Payne’s trademark state-of-the-art FlexRig series for land rigs in the early-to-mid 2000’s. “You had a company committed to fully trying to bend the efficiency curve upwards,” he said. “Then other companies came in behind them.”

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