Desjardins: 'Drilling Like It's 1999,' OnShore Rig Count Falls Below 500

For more than 70 years now, Baker Hughes Incorporated BHI has been publishing rotary rig counts for the United States and Canada every week. The company has also issued a monthly international rig count for the last 40 years.

The oilfield services supplier said the rig counts are “an important business barometer for the drilling industry and its suppliers. When drilling rigs are active they consume products and services produced by the oil service industry. The active rig count acts as a leading indicator of demand for products used in drilling, completing, producing and processing hydrocarbons.”

Last week, the company reported another substantial pullback in U.S. oil drilling activity: After 26 oil rigs were parked, the number of active rigs fell to a six-year low of 413.

“Perhaps more grimly, the total US onshore rig count dipped below 500 units for the first time since 1999, which should eventually elicit a sharp response in shale output,” Desjardins Capital Markets analysts pointed out in a report issued Friday. However, the reality is that they “still do not have visibility on a potential bottom in drilling activity, with producers likely to continue squeezing capital programs in a ~US$30/bbl environment.”

The experts also noted only 487 rigs were operating onshore as of February 19. This figure marks the lowest activity level since August 1999. While the analysts acknowledge that the productive capacity of drilling rigs has exploded in recent years, they “ultimately believe that the collapse in drilling will result in a significant supply response, particularly from key shale plays.”

Desjardins’ report also pointed out that North Dakota Bakken production is rolling (and has been for more than a year now) over a potential “canary in the coal mine," and that the Permian Basin led the weekly decline, with seven rigs parked over the past week.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.