Friday’s report by Baker Hughes that the rig count fell by 11 marks the first time in a year that the count is below the same time in 2022.
Every week this year, the overall rig count has been below where it ended last year. This is not surprising given the volatile oil price and collapsing natural gas prices.
At the same time, the Gulf of Mexico rig count (yes, Baker Hughes measures weekly rig activity differently than most offshore rig counts) is three rigs higher than it was the week of May 20, 2022. Since the end of 2022, the offshore rig count is six rigs higher, and it is up by 75% from the low point recorded in the first week in February.
Admittedly, we are talking about only 21 active Gulf of Mexico rigs out of a total U.S. active rig count of 720 rigs, or 3% of the fleet. Some might suggest that at 3%, the Gulf of Mexico is so marginal it is not worth paying attention to. On the other hand, Gulf operators know their fields tend to have large reserves and prolific wells producing high-quality, reduced emissions crude oil. With extensive infrastructure in place, reserve deposits once considered too marginal to produce are now economic, especially if oil prices remain above $60-$65 a barrel.
Internationally, the rig story is different. The total international rig count (excluding North America) was up 17.5% year-over-year in April. (Unfortunately, Baker Hughes only provides monthly average international data.) International offshore drilling increased by 19% for that period. When we include North American rigs, the global drilling rig count increased nearly 13%, with the U.S. the only region showing a decline since last April.
While the headline of the U.S. rig count falling below a year ago seems to be the main story, the real story is that the worldwide search for offshore oil and gas is growing. U.S. drilling activity can be fickle due to the large number of independent and land-only E&P companies that react quickly to commodity price changes. Land drilling economics are very different from offshore drilling.
With land rigs dominating the U.S. count, their quicker start-up and deactivation times can distort assumptions about the health of the Gulf of Mexico market. Things are better there, and a healthier Gulf of Mexico market will be welcomed.
The reality is that the offshore drilling industry’s future increasingly will be determined by trends in international markets. The statistics demonstrate the recovery is healthy with gains in every region. Do not obsess over the Baker Hughes rig count news.