n its weekly accounting, Baker Hughes Inc. reported Friday that the number of drilling rigs working in the U.S. had
fallen to 1,790, down 12% from the September peak and down 2% from the same time last year. It was just the second time the weekly report reflected a year-over-year decline in the past five years.
Most industry analysts now expect hundreds more rigs to fall idle by the middle of next year. Some industry experts suggest a drop of as many as 1,000 rigs, which would represent a 50% decline from the peak set in September. That would leave fewer rigs running than at any time since 2003.
“This whole thing is happening more at videogame speed than real life,” said Bob Simpson, chairman of oil and gas producer XTO Energy Inc.
Chesapeake Energy Corp., the largest U.S. gas producer, has reduced its drilling budget four times since September, and has said it will do so again if necessary.
“These things take time to play out, and we have been reacting for the last four months to worsening credit conditions,” Chesapeake chief executive Aubrey McClendon said.
The drop-off in activity is also bad news for oilfield service providers, especially drilling companies such as Patterson-UTI Energy Inc. and Nabors Industries Ltd.
If prices remain at current levels or fall further, though, the effects will be felt across the U.S. industry. Oil prices of “$40 to $60, that pretty much doesn’t work in the U.S.,” said Bill Herbert, an analyst with energy-focused investment bank Simmons & Co.
“We are asking Santa for fewer drilling rigs, less supply and a bit more demand,” investment bank Tudor Pickering Holt & Co. wrote in a research note Friday.
Industry executives, however, warn that restoring production takes longer than cutting it. That means the drop-off in drilling activity could lead to supply shortages — and rapidly rising prices — when the economy recovers. “This sets up, I kind of think, the mother of all price recoveries,” Chesapeake’s Mr. McClendon said.
