Drilling & completion activity may have reached its bottom, still, a full recovery in production may be years away.
The number of frac crews in operation has been on the rise since reaching a record low of 45 crews in late May. Primary Vision estimates there are currently 67 frac crews operating, down from 324 before markets were put in turmoil by the Saudi-Russia price war and COVID-19 pandemic. This data and some others suggest D&C activity has seen its lows.
Furthermore, in the past few months, E&Ps have consistently announced large capital spending cuts. Halliburton says the capital cuts perhaps aren’t over. During the Halliburton 2Q2020 earnings call on July 20, 2020, Halliburton CEO Jeff Miller said “Drilling activity declines have slowed, and we believe the rig count should find a bottom some time in the third quarter, but a meaningful inflection point in drilling seems further out.”
In fact, the number of drilling rigs operating has decreased through the most recent stats. The number fell for 19 consecutive weeks, now at its lowest level since Baker Hughes started reporting the data. Since March 6, 2020, active drilling rigs have fallen from 793 to 253.
Taking into account rigs, completions, and well economics, U.S. production is likely to keep trending downward. In the AEGIS “CME Curve” case, where recent forward pricing for oil, gas, and NGLs are used, production would not find its nadir until 2023, even though the declines are gentle. If prices were to dip, we expect quicker declines through 2021.
We do expect DUCs to be used to support production in the meantime, and the use of DUCs could cause surprisingly low declines through next year. The increase in well completions will help to stabilize production but drilling activity will have to increase substantially before we see a meaningful recovery.