The Decline in Active Wells Is Good News for Oil and Gas

Over the last six months, the United States oil and gas industry has seen incredible expansion. In June of 2016, the industry claimed 431 active rigs operating in the US. As of June 30, 2017, that number had leapt to 940 active rigs. Seven hundred and fifty-six of those are pumping oil, and 184 are extracting natural gas. The rise in production represents thousands of new jobs created since July of last year.

The last week in June, the United States’ overall rig count fell by a single rig. After 23 straight weeks of robust expansion in which the US oil and gas industry has reached 940 active rigs, the sudden downturn might strike some as a sign of trouble ahead.

Naysayers Believe the Industry Hasn’t Learned Its Lesson

That’s exactly the case for eight hedge funds who have removed approximately $400 million from Permian Basin, a shale deposit in Texas and New Mexico that produces about 2.5 million barrels of oil every day. One portfolio manager hinted that the hedge funds chose to withdraw their funds over fears that the industry might “go crazy” and produce too much shale and oil, ultimately suppressing the price of oil to disastrous levels.

That insight proved to be short-sighted, as the energy sector’s act of small restraint has  not only spurred a week straight gain in the price of oil ultimately landing above $45 a barrel. It seems as though the oil and gas industry is keenly aware of how much production is too much, and they’ve pulled back at the right moment.

The Decrease Is a Sign of Self-Control and Forethought

As much as America has suffered from the previous two-year downturn in the oil and gas industry the members of the oil and gas industry felt the pinch more acutely. No matter how severe our pain was when we paid for gas or tried to heat our homes, the energy sector endured those same costs while staring down the barrel of job loss, decreased opportunities, increased regulation, and little hope for change. It was a bleak period.

As the industry emerges, they’re wiser and more efficient. They’ve seen the real cost of aggressive, thoughtless expansion, and it’s a mistake they won’t make again.

Posted in Industry News.