U.S. Shale Industry Is Nimble, Except When It Isn’t

Last Friday I wrote about the single rig-drop in the Baker Hughes U.S. rig count, noting that it could be an early harbinger of a second-half 2017 slowing of the somewhat frantic pace of drilling we saw during the year’s first six months.  We’ll need to wait to see what happens in the next two weeks to be fairly sure whether or not that is the case.

But here’s the funny part:  as they are wont to do, many “experts” in the energy media are already telling their audiences that the trend is already here (which, again, is possible), which means the domestic industry is going to slow rapidly (not likely at all), which in turn means the crude price is about to rise back up above $50 in short order (again, not likely at all), which in turn means that, after a month or two, the U.S. industry will then again begin activating a bunch of additional rigs and drilling a bunch more wells before the end of 2017.

That last part is really, really unlikely, given current circumstances.

First, there was the report on Monday that OPEC’s June production rose significantly, to its highest level of 2017.  This indicates that more OPEC member countries are beginning to exceed their agreed-to quotas as time goes on.  Given that this has been a consistent OPEC pattern throughout its history, this comes as no surprise.

Second, as I wrote a couple of weeks ago, my belief based on discussions with industry contacts, and on 38 years of participating in oil and gas industry corporate budgeting processes, is that, barring a true price collapse into the $30s that lasts for at least a couple of months, the rig count will not fall rapidly, as some are predicting today.  Instead, we will most likely see a stagnation or very modest decline in the rig count in coming weeks as companies begin to execute on revised, lower capital budgets for the second half of the year.

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