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April 20, 2020

Scoop-Stack rig count further aggravated by oil price crash

By GlobalData Energy

Scoop-Stack has seen an apparent downward trend in terms of rig count since hitting a peak of 75 rigs in 2018 and the trend was recently aggravated by the oil price crisis.

The rig count going into 2020 was approximately 25 even before the oil price war declared by Saudi Arabia and Russia at the beginning of March. Scoop-Stack’s average rig count in 2020 will hit a new record low with many companies cutting capital expenditure (CapEx) across the play.

By assessing the readjustment of CapEx of eight companies, which accounts for approximately 70% of the total Scoop-Stack production, GlobalData estimates a reduction of 74 thousand barrels of oil equivalent per day (mboe) in output from this group of companies as compared to the forecast for 2020 before the oil price crashed.

According to the GlobalData analysis of the group of companies, the rig count drops from 24 rigs reported in March to 12 rigs by the end of 2020. Overall, this rig reduction is a result of CapEx cuts, summing up to approximately $1bn reported by operators.

GlobalData took gas wells drilled between 2018 to date to understand if operators within Scoop-Stack could use the opportunity to explore their gas-bearing acreage.

The sample-set consists of slightly less than 200 wells, of those less than 25% have breakeven below $3 per thousand cubic feet (mcf). This proves that an opportunity could emerge if gas prices were to recover above $3 per mcf, given the fact that associated gas volumes produced from oil wells would be reduced.

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The current oil price crash has led to a consensus formed between OPEC+ nations to reduce production by 9.7 million barrels of oil per day (mmbd). However, the production cut was not sufficient to prop up the oil price mainly because the oil demand plunge due to the current pandemic is almost three times the supply cut.

Even though we might see some of the countries reopen their economies, the oil demand might remain uncertain throughout the second half of 2020 and might call for another round of production cuts to provide additional support to the oil price.

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