A Top Permian Oil Producer Says Rig Counts in the Region Are Going to Soar

(Bloomberg) -- One of the biggest player in the Permian Basin, America's most coveted oil field, thinks rig counts in region are poised for explosive growth.

In an interview with Bloomberg, Pioneer Natural Resources Co. Chief Executive Scott Sheffield predicted that 100 oil rigs will be added in the area considered to be U.S. shale drillers' version of prime real estate over the next year. Bloomberg Intelligence Analysts Vincent Piazza and Daniel Krauser note that Pioneer has the highest gross production of any driller in the Spraberry and Wolfcamp formations in the Texan oil field.

The shale revolution sparked a frenzied rise in U.S. crude production that eventually drove oil prices to their lowest level in more than a decade earlier this year. While prices have since recovered, they've failed to sustainably hold above $50 per barrel — and any advances may continue to be capped if drillers boost activity in the productive Permian Basin.

Rig count data from Baker Hughes shows the number of all types of active rigs in the Permian Basin — which spans from West Texas into a portion of New Mexico — stands at 202 as of Sept. 16, with 416 active oil rigs across the U.S.

A Top Permian Oil Producer Says Rig Counts in the Region Are Going to Soar
Source: Bloomberg

Morgan Stanley Commodity Strategist Adam Longson has warned that oil companies have been engaging in "high grading" — expanding activity in their most productive fields — as crude prices rebounded earlier this year.

Adding a rig in the Permian, he warned, results in an outsized boost to U.S. oil production four to six months down the road — meaning headline rig count figures wouldn't necessarily tell the full story on where aggregate production is heading.

At a conference on Wednesday, Sheffield said he sees output in the region "really taking off" in the first half of next year, with aggregate U.S. production beginning to grow again around the end of 2017 or the following year.

The Permian region can grow production by 300,000 barrels per day, per year, according to Sheffield.

The decline in rig counts has been the biggest contributor to the weakness in U.S. business investment since crude prices began to collapse in the middle of 2014. During Wednesday's press conference following the Federal Reserve's announcement, Chair Janet Yellen said drilling was "now showing signs of stabilizing."

To contact the authors of this story: Luke Kawa in New York at lkawa@bloomberg.net, David Wethe in Houston at dwethe@bloomberg.net, Ryan Lovdahl in New York at rlovdahl@bloomberg.net.

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