Drilling rig count declines in 2023 for first time in two years

The number of rigs drilling for oil and natural gas across the United States dropped in 2023, reversing course after two years of growth.

In its final report of the year, Baker Hughes Co. said Friday that 622 rigs were at work, down 157 from the same time a year earlier. That 20% dip marked the first annual decline since 2020. Drillers in the U.S. had added 235 rigs in 2021 and 193 in 2022. 

The trends are likely to continue, with some analysts suggesting that daily production of 14 million barrels is not far off.

The main driver: The industry’s response to Russia’s invasion of Ukraine in February 2022. The war sent the price of oil to more than $100 a barrel for the first time in nearly a decade, kicking drillers into action. Wells started then are now in full production.

The gains come as improvements in technology and efficiency have boosted production with fewer rigs in the field. Among other techniques, exploration and production companies are drilling longer laterals — which dramatically increase yield from a single well — and deploying rigs only to the most promising areas to maximize return on investment. 

In Texas, the nation’s top oil-producing state, oil production reached a record high of 5.7 million barrels per day in August, according to the Texas Oil & Gas Association. 

“Texas’ production of oil and natural gas has achieved records despite relatively modest drilling activity,” association Chief Economist Dean Foreman wrote at the end of September. “Productivity gains and leveraging wells that have been drilled but not yet completed have provided a tailwind.” 

That highlights one element of the rig count’s imperfection as an indicator of production. It tracks the number of rigs currently drilling for oil and gas, but, in many cases, wells are drilled but not immediately made ready for production. 

Since a year ago, according to the Energy Information Administration, the inventory of drilled but uncompleted wells has declined to about 4,500 from 5,300. Those 800 wells are now producing oil and gas — and would not have been impacted by the declining rig count.

As production has increased, oil prices have fallen and with them the price of gasoline. Average pump prices now are down about $2 a gallon since peaking near $5 a gallon in summer 2022. 

Crude oil futures prices declined more than 10% in 2023. The price of West Texas Intermediate, the domestic benchmark, closed Friday at $71.65 per barrel. That was its lowest year-end level since 2020. Brent, the international benchmark, finished the year at $77.04 per barrel.

Between July and late December, activity in the oil and gas sector in Texas, southern New Mexico and northern Louisiana steadily increased, driven by the exploration and production side of the business, according to oil and gas executives responding to quarterly surveys by the Federal Reserve Bank of Dallas. The fourth-quarter survey out in late December showed activity was essentially unchanged from the previous three-month period. Oil production increased, it showed, but at a slower pace than during the third quarter.

Most executives surveyed — 84% — said they expected the number of U.S. oil rigs to remain near current levels.

Of the 622 rigs standing as of Friday, 500 were exploring for oil and 120 for gas. Two were unclassified.

By state, Texas remained the biggest driller, with 309 rigs at work. That was up three from the previous week but down 67 from a year ago. There were 97 rigs working in New Mexico, 44 in Oklahoma and 42 in Louisiana.

The Permian led the way among major basins, with 309 rigs at work as of Friday. That was down 44 from a year earlier. South Texas’ Eagle Ford Shale finished the year with 53 rigs working, down 18 from a year ago. The East Texas-Louisiana Haynesville Shale had 44, down 27.