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Rystad Energy said the US horizontal oil rig count is poised to drop by an estimated 65 per cent due to the combined global effect of the COVID-19 pandemic and the ongoing oil price war

From a peak of about 620 rigs in mid-March 2020, the oil rig count is forecast to free-fall to a potential bottom of around 200, Rystad Energy estimates, interpreting updated guidance from exploration and production (E&P) companies.

Most of the anticipated decline will come already by the end of April. The horizontal rig count has so far dropped to roughly 500, falling by 19 per cent from the recent apogee just three weeks ago.

Over a three-week period since peak activity level, horizontal oil drilling is down by 19 per cent. In the down cycles of 2015 and 2016, it took 10-16 weeks after the peak to see the same magnitude of decline.

“The speed of this decline exceeds the initial post-oil-price-crash expectations. This is for sure a much faster industry reaction than during the previous US land rig down cycles, and we will likely see continuous downward adjustments of similar magnitude throughout the next couple of months,” said Rystad Energy’s Head of Shale Research Artem Abramov.

Rig count declines are now happening everywhere, with total SCOOP & STACK activity approaching 20 horizontal rigs, a level never seen in the modern unconventional era (since 2011).

Almost 25 per cent of rigs recently active in Eagle Ford are already gone, bringing Eagle Ford drilling to February 2017 levels. Bakken rig activity remains more robust in relative terms, but rig counts are also already down to the low 40s – a level last seen in May 2017.

Rystad stated that Permian horizontal drilling is also declining in all core sub-basins; however, the rig activity in core oil-rich parts of the Permian (Delaware NM and Midland North) has not yet declined towards multi-year lows. Rig activity in these two sub-basins is still little changed since the start of the year. Meanwhile, rig activity in gassier sub-basins (Delaware TX and Midland South) is already down to a level last seen in early 2017.

“Rig activity in the US will inevitably extend its decline into the second quarter of 2020, regardless of how the global macro environment evolves in the short term. This downturn is the real test of US Land industry endurance,” concluded Abramov.