Producer statements in quarterly earnings calls or press releases are customarily good guidance to forthcoming E&P activity, and in times of stable market conditions these expectations broadly correspond to what actually happens. However, the pronouncements from 3 months ago didn’t anticipate the current period of market volatility and uncertainty and it's possible that some producers have changed their capex plans. We can help answer this question now by looking at how rig and frac crew activity is changing.

 As seen in the chart above WTI Oil price is down nearly $15 in the last 3 months, $5 in the last 4 weeks, and currently hovering at about $62. Henry Hub natural gas prices are essentially flat to early Feb (though down from recent highs). It’s important to note that it’s both overall price level and changes that can be important - if price is high enough to clear a hurdle return rate in a particular area, one might expect less sensitivity to changes that are above that threshold.

Given these substantial changes in the market, we thought it valuable to examine activity from several different directions looking for anomalous trends/levels - nationally, regionally, by target, and, especially, by the subset of producers that do announce specific rig and crew targets. 

National Activity

Overall, the US rig count is up about 45 rigs since the beginning of Jan, but crews are flat, having fallen 15% in the last few weeks after slowly rising in the first few months of the year. (Note the two different scales, which normalizes changes for very different levels). Breaking down by oil vs gas tells a broadly similar story for rigs, both oil and gas:  slowly rising since the beginning of the year, and no apparent reaction to price volatility so far. 

Frac crew activity tells a very different story, however. Oil crews are essentially flat, with variations less than ± 10%. Gas crew counts have been very volatile, however, rising over 20% from the beginning of the year to the peak, then falling recently by 15% to end just about where it started. Gas crew counts do appear to be responding to gas prices and gas price variations. What this data can’t tell us is what’s responding to what, i.e. are operators responding to price signals that indicate supply/demand mismatches, or are they managing production to respond to anticipated demand, driving price signals?  (Most likely, the answer is “Yes.”, i.e. both.)

The more responsive nature of crews is to be expected, for two reasons. First, fracking and completions are broadly the more expensive step in the shale drilling process, though the proportion varies greatly.  Second, as the second step in the drilling process, if an operator needs to save cash it provides a “real option” decision point, as it allows them to reduce current outlay, while building a cheaper inventory to bring on later when their cash position is better. 

Regional Activity

As can be expected, regional breakdowns show some very different patterns than the national picture. In general, the basins in the US are either oil-focused, or gas-focused, depending on their product mix. Only the Utica/Southwest PA and Eagle Ford tend to have more-equal economics, with oil products lending some uplift to, or leading economics, but with gas still contributing substantially. In these areas relative pricing is important and can change decision points. Permian, Bakken, Haynesville, and Northeastern PA are all driven by the economics of their primary product. Even though Permian and Bakken produce substantial amounts of gas, relative to oil revenue, it’s nothing close to the primary driver of economics. 

Given that Permian is almost exactly half of all activity in the lower 48, it should come as no surprise that it exhibits a pattern that is nearly identical to the national picture - the national picture is the Permian. (EIA’s most recent monthly production for 2024 confirmed this - with essentially all of the US increase in oil production coming from just this one basin.)  The one area that was a bit surprising given the overall picture is the frac crew count. As noted above, the oil crew count is essentially flat - but in the Permian, an oil-focused basin, we have seen a sharp decline in the last five weeks - losing nearly 20%. This is what one might have expected from the price action.

Whereas Haynesville has clearly reacted to price levels, with rigs and crews up nearly 20% since the beginning of the year. Both have exhibited some real volatility, likely amplified by the low total numbers, but neither seems to have reacted to price changes. This is likely due to the steadily increasing demand on the US Gulf Coast from LNG, both now and anticipated in the next 18-24 months. (Please see our recent research on breakeven activity levels in the Haynesville.)

Appalachia is essentially flat since the beginning of the year, albeit with a similar volatility to Haynesville. Here, rigs appear to have generally followed gas price changes, but given the extensive constraints in the area, that’s most likely coincidental. It’s well-known that Appalachian producers will proactively manage drilling, completions, DUCs and TILs to match demand, and we would expect little correlation to broader price trend, except in the case of large moves.

But the two most interesting regions are Bakken and Eagle Ford. As one of the more-marginal oil plays in the US, one would expect that rig counts in the Bakken would be the proverbial “canary in the coal mine” for oil-directed activity in the US. And we do see a 20% decline in rigs since the beginning of April - but as you can also see, that was after a 30% increase in March, meaning for the year, it’s about flat. Crews are similarly volatile, but with so few active, even a single crew being dropped is about an 8% change, so we can’t really draw any conclusions, other than there is a general decrease in crews, but certainly nothing sharp, corresponding to the price movements.

Which brings us to Eagle Ford, the most surprising of all. Overall, EF rigs are up 10% for the year, and that has happened in the last 5 weeks, with crews volatile, but roughly flat. This might lead one to conclude that maybe it’s in the more gas-directed drilling, with oil prices being so unsupportive, but that is not the case. Breaking down both by target, and by the counties that have changed the most, show that both types of rigs, oil- and gas-directed, have increased recently. Oil-directed rigs dropped before that recent increase,, but that decline started weeks prior to the turmoil in the oil markets.

Another effect to always remember in the Eagle Ford is that the designation of a gas or oil rig is based on a clear demarcation based on the gas-to-oil ratio of the well. The EF has a spectrum of GORs that cross the demarcation line, and the economics might be driven by the “coproduct” of the official well designation, depending on the actual product composition. All that we can say clearly is that EF activity is healthy.

Announced Activity

The subset of total activity that is from companies that announce their specific rig and crew plans is smaller, about ⅓ of the total activity we see. The story here shows several different features that bear mentioning. As you can see below, rigs have been running a bit higher than announced and crews substantially so, though both have declined in the last few weeks after rising. Though only Matador has said that they are pulling back, several clearly have. Note that of our set of operators, Ovintiv, Oxy and Chord announce rig but not frac crew count expectations. Also note that these targets are a mix of quarterly and annual targets, and annual targets can be adjusted quarter-to-quarter.

The other significant conclusion is that the understatement of crew counts is a “sin” common to almost all operators. With few exceptions, those that announce crew count expectations ran much higher levels.

As we discussed before, however, gas and oil prices have followed very different trajectories this year, so it’s clearly worth looking at these separately (though we will lose the announced levels).

And here is where some significant differences appear. Surprisingly, gas rigs for this subset have been on a steady decline, but frac crews have broadly followed prices. Oil rig activity has followed the overall pattern, rising before falling recently, whereas crew counts have been gently falling.

What is clear from this data is that operators that announce their activity have not been representative of the broader universe of operators.

Finally, there are a few operators that have clearly responded to price pressures. Expand and Matador have chosen to reduce completion activity, while maintaining drilling, SM Energy is hunkering down in both, and finally, Range seems to be making a counter-cyclical move to drawdown their DUCs - with completion activity ramping up while drilling ramps down.

Conclusion

Overall, it appears that producers are adopting a wait-and-see approach to the current price environment. There is little indication that operators are changing their plans quickly, with just a couple of exceptions. In addition, the data calls into question whether operators that announce their plans (i.e. public companies) well-represent the broader universe of operators, at least in the short run. 

Producers constantly re-evaluate their capital expenditures and plans, but they also exhibit significant inertia in that planning. There is substantial resistance to responding to daily pressures, and plans, once made, are very sticky. Consequently, this is a topic that will need to be revisited, especially if prices stay depressed for any length of time.

But either way, you’ll see it on Hyperion first. No need to guess.