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The number of active oil rigs in the U.S. fell by four to 176, the lowest since 2005, according to Baker Hughes Co. data released Friday. Beyond the addition of a single rig two weeks ago, explorers have been shutting off rigs for four and half months.
Explorers are channeling cash into dividends and other shareholder-friendly initiatives at the expense of drilling to appease investors fed up with years of poor returns.
“North American E&Ps are in a battle for investment relevance, not a battle for global market share,” Matt Gallagher, chief executive officer at Parsley Energy (NYSE:PE) Inc., told analysts during a conference call this week. “Allocating growth capital into a global market with artificially constrained supply is a trap our industry has fallen into time and time again.”
Worldwide lockdowns to prevent the spread of Covid-19 had a devastating impact on crude demand at a time when shale explorers were already struggling with too much debt and restive shareholders. While benchmark U.S. oil futures have roughly doubled to $40 a barrel since the start of May, prices are still down by more than 30% for the year.
The rig count is a closely watched metric because it’s long been considered indicative of future crude production. The relationship is imperfect, however, because of the time lag between drilling a well and commencing production, as well as other factors such as the turning off of existing wells in response to price movements.
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