US oil/gas rig count falls for 6th week to 2021 lows, Baker Hughes says

Baker Hughes reported that the U.S. oil and gas rig count fell for the sixth consecutive week, dropping by four to 559, the lowest level since November 2021, driven by a decline in oil rigs; this decrease reflects energy firms' continued focus on shareholder returns and debt reduction amid lower oil and gas prices, leading to projected capital expenditure cuts by independent E&P companies in 2025. Despite analysts forecasting a third consecutive year of declining U.S. spot crude prices in 2025, the EIA projects crude output to rise to 13.4 million bpd, while an expected 88% increase in spot gas prices in 2025 is anticipated to boost gas drilling activity and output.

Analysis

U.S. energy firms reduced the operating oil and natural gas rig count for the sixth consecutive week, with the total falling by four to 559 for the week ending June 6, marking its lowest point since November 2021, according to Baker Hughes. This decline was driven by a nine-rig drop in oil rigs to 442, partially offset by a five-rig increase in gas rigs to 114. This continued reduction in drilling activity, which has seen the total rig count fall by approximately 5% in 2024 and 20% in 2023, reflects a strategic shift by energy companies towards enhancing shareholder returns and reducing debt, rather than aggressively boosting output, in response to lower U.S. oil and gas prices over the past two years. This trend is further evidenced by rig counts in key regions like the Permian, Eagle Ford, and Texas reaching their lowest levels since November 2021. Independent exploration and production (E&P) companies are projecting a capital expenditure cut of around 3% in 2025, following roughly flat year-over-year spending in 2024, a significant deceleration from the 27% and 40% increases in 2023 and 2022, respectively. Despite these activity cutbacks and analysts forecasting a third consecutive year of declining U.S. spot crude prices in 2025, the U.S. Energy Information Administration (EIA) projects crude output will rise from a record 13.2 million barrels per day (bpd) in 2024 to 13.4 million bpd in 2025, suggesting efficiency gains or a focus on high-yield wells. Conversely, for natural gas, the EIA forecasts an 88% surge in spot gas prices in 2025, which is anticipated to spur drilling activity and lift gas output to 104.9 billion cubic feet per day (bcfd) in 2025, up from 103.2 bcfd in 2024 and a record 103.6 bcfd in 2023. Baker Hughes also noted a correction in oil and gas classifications for approximately eight to 10 rigs in the Marcellus and Utica basins effective April 4, though total historical rig counts remain unchanged.

Key Decisions for Investors

• Investors should monitor the divergence between declining U.S. rig counts and the EIA's projection of rising crude oil output, as sustained production growth despite lower activity could indicate significant efficiency gains by E&Ps but also potentially cap oil price rallies.
• Consider opportunities in natural gas-levered E&Ps, given the EIA's forecast of a substantial spot gas price increase in 2025 that is expected to stimulate drilling and production, potentially leading to improved sector fundamentals.
• Favor E&P companies demonstrating strong capital discipline and robust shareholder return programs (dividends, buybacks), as the industry trend of prioritizing returns over aggressive production growth, underscored by planned 2025 capex cuts, is set to continue.
• For oilfield service providers like Baker Hughes, anticipate near-term revenue headwinds due to lower overall rig activity, but remain watchful for potential catalysts from a rebound in gas drilling or increased investment in production optimization technologies.