U.S. oil drillers deepen cuts in 7th week of declines -Baker Hughes

Feb 5 (Reuters) - U.S. energy firms this week cut oil rigs
for a seventh week in a row to the lowest levels since March
2010, data showed on Friday, as energy firms continue to cut
spending due to the collapse in crude prices.
Drillers removed 31 oil rigs in the week ended Feb. 5, the
biggest cut since April last year, bringing the total rig count
down to 467, oil services company Baker Hughes Inc BHI.N said
in its closely followed report.
That compares with 1,140 oil rigs operating in same week a
year ago. In 2015, drillers cut on average 18 rigs per week for
a total of 963 oil rigs for the year, the biggest annual decline
since at least 1988.
Before this week, drillers have cut on average 10 rigs per
week so far this year.
Front-month U.S. crude futures CLc1 were trading at about
$31 per barrel and Brent at $34 on Friday, on track to end the
week lower after two consecutive weeks of gains. O/R
Looking forward, U.S. crude futures were fetching around $37
for the balance of 2016 CLBALst and $43 for 2017 CLYstc1 .
Exxon Mobil Corp (N:XOM) XOM.N joined a slew of oil companies in
cutting spending amid the slump in oil prices, saying this week
it expects to cut worldwide capital and exploration expenditures
by 25 percent this year.
But even as crude futures have remained low after by
plunging some 70 percent over the past 18 months, analysts say
that production cuts may not follow shortly.
"Curtailed budgets have slowed investment which will reduce
future volumes, but there is little evidence of production
shut-ins for economic reasons," said Robert Plummer, vice
President of oil investment research at consultancy Wood
Mackenzie, said in a report released Friday.
The research found that aggressive cost cutting in the U.S.
had enabled more of the shale plays to make money - and survive
- at lower prices.
"In the past year we have seen a significant lowering of
production costs in the U.S., which has resulted in only 190,000
barrels per day being cash negative at a Brent price of $35,"
said Stewart Williams, vice president of upstream research at
Wood Mackenzie, adding that "the majority" only become cash
negative at Brent prices "well-below $30 per barrel."
Other analysts have held that a recovery in drilling is
needed to staunch rapid declines from shale wells.
"Without a recovery in drilling, the fall in output will
become severe given the relatively low recent pace of
productivity gains," analysts at Standard Chartered (L:STAN) said.
"The shale oil output projections at current activity levels
imply that drilling has to start to rise soon to keep the market
from swinging too heavily into excess demand by the end of
2016," Standard Chartered said, noting, "This means getting
prices back above $50 fairly quickly."
Analysts at Bank of America Merrill Lynch (N:BAC) this week forecast
the rig count would increase later this year.
"With our price forecasts for (U.S. crude) at $45 this year
and $59 in 2017, the U.S. rig count should increase again by the
second half of 2016, albeit the expected pace of investment is
likely to be much gentler than during the shale revolution,"
said Bank of America, noting "Shale output will return to growth
in 2017, in our view."
U.S. crude oil production averaged about 9.4 million bpd in
2015 and was forecast to average 8.7 million bpd in 2016 and 8.5
million bpd in 2017, according to the latest U.S. Energy
Information Administration's Short-Term Energy Outlook.

Graphic on U.S. rig counts http://graphics.thomsonreuters.com/15/rigcount/index.html
U.S. natural gas rig count versus futures price http://link.reuters.com/nuz86t
Thomson Reuters Analytics natural gas data reuters://screen/verb=Open/URL=cpurl://pointcarbon.cp./trading/gmtna/
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