U.S. Oil and Gas Rig Count Up

Traditionally, rig count stands out as one of the key oil and gas industry parameters. The number of rigs contracted in the region determines day rates as well as contract length and number. These three major factors rule the state of the market. Moreover, strong trends toward higher crude oil prices stimulate companies’ capital budgets and future investments, driving exploration and production activities.

In the current complex oil and gas industry, prices are not primarily biased on the supply-demand imbalance. In fact, the major influence is people’s perception and analysis of what could come. Therefore, giving a solid prediction is very difficult. This industry is hindered by the manipulation of traders who hedge based on estimates and producers who stock production in anticipation of periods with higher prices.
 

Pace of Recovery

Chart 1 shows the oil and gas industry’s pace of recovery, straightforwardly influenced by rig count growth throughout the second quarter and witnessing a compound annual growth rate (CAGR) of 2.9 percent at the end of 2010.

Chart 2 illustrates the 2010 West Texas Intermediate crude oil (WTI) prices recovery, reaching an annual average of $79.4 per barrel at a 1.2 percent compound annual growth rate. Oil prices are likely to remain strong, producing higher-level investments that are expected to continue in the short term.

Unconventional Reserves

On the other hand, as conventional reserves of oil decrease, unconventional reserves need to be exploited. Access can only be guaranteed with advanced technological equipment that requires a bigger investment. Continued lack of credit and low acceptance of risk for exploration and production projects in ecologically sensitive areas, limits capital spending. Nevertheless, as a result of advancements in drilling efficiencies, well productivity is increasing and costs are decreasing, encouraging producers to acquire new wells.