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New Mexico oil and gas rig counts continue drop; industry to see gradual recovery in 2020

Carlsbad Current-Argus logo Carlsbad Current-Argus 8/19/2020 Adrian Hedden, Carlsbad Current-Argus
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The number of oil and gas rigs in New Mexico continued to fall in August to the lowest count since the COVID-19 pandemic disrupted the market by shrinking fuel demands.

Drilling operations in the Land of Enchantment and across the Permian Basin fell by historic levels as producers curtailed operations in order to survive the lower price environmental brought on the by the global health crisis.

As of Friday, Baker Hughes reported 45 rigs in New Mexico, dropping one rig since the previous report on Aug. 7.

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The monthly average fell steadily since the pandemic spread to New Mexico in March which averaged 114 rigs.

But April’s average plummeted to 87 rigs and May fell to 65.

The summer saw continued losses with June and July averaging 54 and 49 rigs respectively.

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The Permian Basin, where most of New Mexico’s oil and gas operations are centered in the southeast, had 117 active rigs as of Tuesday, down five in the last week and 324 from a total of 441 a year ago.

Texas, which shares the Permian with New Mexico, dropped four rigs in the last week to a total of 100 rigs as of Tuesday, marking a loss of 350 rigs in the last year.

Overall, the U.S.' rig county fell by 631 rigs this year to 244 as of Friday.

Meanwhile the price per barrel, after recovering in the months after April’s historic drop to less than $0 per barrel, appeared to stagnate between $40 and $45 this summer.

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Per data from Nasdaq, domestic crude traded at about $35 per barrel at the start of June and was at about $40 per barrel a month later.

As of Tuesday, Nasdaq reported the price per barrel was at about $42 per barrel.

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A report from oil and gas analytical firm Enverus said oil and gas producers saw massive declines in company revenue amid the struggling market, leading to well shut-ins and bankruptcies throughout the industry.

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And midstream companies, who build and operate infrastructure such as pipelines and storage batteries, were put at risk of seeing lower volumes and losing out on contracts, the report read.

Bernadette Johnson, Enverus vice president of strategic analysis predicted before the New Mexico Legislative Finance Committee last month that the oil and gas industry could take up to three years to return to pre-pandemic value and activity.

“It’s been a tough year for the industry and a rebalance will be anything but quick,” she said. “Somewhat caught in the middle between struggling (exploration and production) companies and the historical drop in demand from consumers, due to COVID-19, the midstream sector in particular is also vulnerable to regulatory threats, legal rulings and a challenging pipeline permit approval process.”

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She cautioned that bankruptcies among producers could lead to further financial struggle for all sectors of the industry, but that the industry will ultimately recover as the U.S.’ shale deposits and natural oil and gas resources are plentiful.

“Bankruptcies have a tendency to initiate a domino effect impacting everyone down the line. Contracts are called into question and so is timely delivery of payment,” Johnson said. “It certainly throws doubt and uncertainty into the mix. But this is a resilient industry and hydrocarbons aren’t going anywhere anytime soon.”

A study release Friday by energy research company Rystad Energy of 25 major oil and gas onshore operators showed that optimism could be carried by the industry by the end of the year with most U.S. onshore operators planning to restore nearly all their shut-in volumes by the third quarter, read the report.

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Well shut-ins and production cuts peaked in May, the study showed, with a net total of 772,500 barrels per day among the 25 companies included in the analysis.

That dropped to about 680,300 barrels per day taken off the market in June and fell further to about 306,500 barrels per day in July.

Rystad predicted the curtailed volume could drop further by 74,300 barrels per day in August with “nearly all” restored by September.

The increased operations were led by the spring’s recovery in the price per barrel, the report read.

“No loss of production has been reported by any operator following the shut-ins and moderation of output, with most companies flagging a smooth return of operations, and in some cases posting a positive production impact from those reactivations,” said Veronika Akulinitseva Rystad Energy’s vice President for North American shale and upstream.

Adrian Hedden can be reached at 575-628-5516, achedden@currentargus.com or @AdrianHedden on Twitter.

This article originally appeared on Carlsbad Current-Argus: New Mexico oil and gas rig counts continue drop; industry to see gradual recovery in 2020

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