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More Than 500 Rigs May Shut Down as Oil Slides, Analysts Say

By On December 17, 2014 10:09 am

Fuel Fix

HOUSTON – As many as 550 drilling rigs may have to sit on the sidelines of U.S. shale oil patches over the next few months, analysts say, as oil prices have folded nearly in half since this summer.

The projections come a few days after Texas drilling rigs led the nation in a 1.4 percent weekly decline in the U.S. active rig count, according to oil field services firm Baker Hughes. Oil companies cut 20 rigs in the Permian Basin, a sharp turnaround from the flurry of rigs and hydraulic fracturing equipment that had rushed to West Texas earlier this year.

“We think there’s a significant amount of pain coming” to the oil industry and its service companies next year, said Praveen Narra, an analyst with Raymond James. Any recovery in U.S. drilling activity will likely take longer than usual in oil-price downturns because the decline was set off by a glut in crude supplies, rather than less demand, he said.

“The problem isn’t as quick of a fix as it would be if demand rebounded,” Narra said, adding that service costs for rigs and other oil tools will likely come down.

Rigs could begin to see less work starting early next year, following a 40 percent drop in the number of new U.S. drilling permits issued from October to November, Jason Wangler, an analyst with Wunderlich Securities, wrote in a note to clients on Tuesday.

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