Arkansas drilling rig count falls to 5, lowest level in a decade

Arkansas’ rig count has fallen to its lowest level in more than a decade as drillers and oilfield equipment companies have cut back substantially on upstream oil and gas capital projects for the remainder of the fiscal year.

According to the Baker Hughes weekly rig count, the number of rigs operating in Arkansas is now down to only five, a level not seen since the week of May 5, 2005. A year ago, there were 11 rigs actively drilling for oil and gas across the state of Arkansas.

Jack Dollarhide, CEO of Tulsa, Okla-based Longbow Asset Management, said as the U.S. energy marketplace approaches the one-year anniversary of the drastic decline in global crude oil prices, the domestic natural gas marketplace is mired in a nearly seven-year slump driven mainly by oversupply due to new drilling methods and technologies.

“Not surprisingly, the U.S. rig count for oil and natural gas have predictably declined over the past 6-7 months as volatile commodity prices have been under immense pressure punctuated last week when the Baker Hughes rig count fell for the 27th consecutive week,” said the Tulsa investment strategist.

Nationwide, the total number of rotary rigs exploring for oil and gas in the U.S. is only 859, down more than 53.7% from year ago levels of 1,854. Of That total, 635 are drilling for oil, 221 for natural gas and three for other purposes.

Overall, the number of natural gas-directed rigs is down 73% from its recent peak of 811, achieved in 2012. The all-time high of 1,606 was reached in late summer 2008. A year ago, there were 310 active natural gas rigs operating across the U.S.

Dollarhide said despite the downward pressure on coal and domestic oil prices, natural gas prices have failed to break out of its long seven-year bear market.

“In fact, many would argue that the pullback in the energy sector reflected in slashed drilling budgets, massive layoffs, and office closures can be blamed more on the inability of natural gas to make a sustained rebound than even the shocking decline in oil – which is not as shocking today since oil has recovered about 40% since its February lows,” said the Tulsa money manager.

In Monday’s trading session on the New York Mercantile Exchange, July natural gas futures jumped 13.7 cents, or nearly 5%, to $2.887 per million British thermal units (MMBtu). However, July crude futures on NYMEX fell 58 cents to $59.48 a barrel after gaining 1.4% in the prior week.

In its most recent short-term forecast, the U.S. Energy Information Administration (EIA) forecasts Brent crude oil prices will average $61 per barrel in 2015 and $67 per barrel in 2016. The 2016 price forecast is three dollars lower than in last month’s forecast. The nation’s benchmark crude, West Texas Intermediate (WTI), is expected to average $5 a barrel less than the Brent price in 2015 and 2016.

The spot price of natural gas at Henry Hub averaged $2.85 per MMBtu in May, after averaging $2.61 per MMBtu in April. EIA expects monthly average natural gas prices to rise somewhat through the summer as air-conditioning demand increases, but remain below $4 per MMBtu throughout the forecast period.

In every week since the April start of the natural gas storage injection season, weekly inventory builds have surpassed the previous five-year (2010-14) average. The 132 billion cubic feet (Bcf) increase in working gas inventories for the week ending May 29 was the largest injection in more than a decade.

EIA forecasts inventories will total 3,912 Bcf at the end of October 2015, which would be 115 Bcf above the previous five-year average.