While US Independents have been under constant pressure to slow drilling down due to capital constraints caused by weak natural gas, natural gas liquids, and crude oil prices, the majors have continued to drill horizontal wells at the same pace as when oil prices were $100 per barrel. In the first 6 months of 2013, the majors consisting of ExxonMobil (NYSE: XOM), Chevron (NYSE: CVX), Shell (NYSE: RDS.A), BP (NYSE: BP), and ConocoPhillips (NYSE: COP) drilled a combined 693 horizontal wells, and in the first 6 months of 2014, those operators drilled 632 horizontals wells in the US. Through the first 6 months of 2015, the group has combined for 668 horizontal wells, nearly 5% more than in the same period of 2014 when crude oil prices averaged $101 per barrel compared to $53 per barrel in 2015.
While Shell has slowed its investments in US Shale plays from 2013 and eventually exited from the Eagle Ford and Sand Wash Basin, the rest of the majors have increased the number of horizontal wells drilled to offset Shell’s exit. In recent months, BP has even increased drilling, further growing the number of horizontal wells from 1-2 per month to 12 in June with a focus on the Anadarko & Arkoma basins of Oklahoma. Additionally, in the Permian basin, all of the majors but BP are highly active drilling 22 horizontal wells in June and Chevron has continued to move forward with development plans hatched in 2013 and 2014 of its Wolfcomp and Bone Springs positions.
While ConocoPhillips has been the most price responsive in regards to US horizontal drilling activity, cutting wells counts from 55 in November to just 30 in June, it also recently cancelled a long term commitment to a new deep water drill ship (Link to Press Release) slated for operations in the US Gulf of Mexico by paying a $400M cancellation fee. As part of this cancellation, Conocophillips announced its intent to focus more investment on its onshore North American projects. Should other majors follow suit could we begin to see higher drilling activity levels throughout 2015 and into 2016?