ADoseOfData

One Rig, Two Rig, Three Rig, More

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Back in the Aug. 19 issue of Data Insights (Thick as thieves: WTI to Permian rig count) we highlighted the strong correlation of WTI to Permian rig count. Essentially, WTI has historically been a strong predictor of how many rigs will be operating in the Permian and that for every $1 WTI rises or falls, five rigs are either added or taken out of the basin three months later. That correlation has started to slip some with the unrelenting ramp in rig count in the basin (figure below), averaging 239 rigs for Dec but ending the year closer to 260. WTI, on the other hand, bounced off of the $30 lows in Q1 and has a much more moderate gain in Q3 and Q4, suggesting a rig count closer to 200. Naturally, this begs the question of whether this indicates a paradigm shift for the basin or if rigs will pull back and level out. Given the buying activity in the area and the expectation of producers, a pullback would seem the less likely of the two scenarios. Regardless, the ramp has been good for companies like TRGP, ETP, WTG and WES.

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The Eagle Ford on the other hand, is starting to come back into alignment. The Eagle Ford’s correlation to WTI is not as strong over as long a period as the Permian. This is likely due to a number of reasons, not the least of which would be the basins complexity having very distinct oil, gas, and NGL windows that producers have been sorting out over the last few years. Most of the more recent activity focuses on the oil window and generally, for every $1 WTI rises or falls, three rigs are either added or taken out of the basin three months later. However, that correlation seemed to be in doubt after WTI bounced, but rig count was slow to respond. More recently the model has come back into alignment. Rig counts in the Eagle Ford in December have inched up faster than in previous months, now closing in on 70. The hesitation could have been related to fears that WTI pricing would not hold or even that the focus on the Permian delayed the response in the Eagle Ford. The new rig count gains in the basin are benefiting companies like Enterprise with smaller gains spread across several other players.

We continue to watch both basins closely as well as keep an eye on what happens to prices over the next three months as it will be a strong indicator of what producers will expect to do in 2017. (Tickers: TRGP, ETP, WES, EPD)

About The Author Justin Carlson

I have over 10 years of experience in data analysis, research, and consulting across the energy sector. I currently serve as Vice President of Research and Managing Director at East Daley Capital, an energy assets research firm that is changing how investors look at midstream energy risk with an asset-driven information service that combines proprietary research with a trusted team of unbiased, experienced energy analysts. My insights and analysis bring greater transparency to the energy financial market by quantifying potential risks by asset and enabling investors to make more informed and accurate projections and investments. Prior to joining East Daley Capital, I was a senior manager at Platts, a division of McGraw Hill Financial, which acquired Bentek Energy, where I was a senior member of the leadership team.