Halliburton, the world’s second-largest oil field services company, was formed in Duncan, Oklahoma more than one hundred years ago.
According to company lore, Eric P. Halliburton began an oil well cement business in Duncan in 1919 after borrowing a wagon, mules and a pump.
Today, the company has its headquarters in Houston, with offices in 80 countries and 50,000 employees.
But the town of Duncan remains part of Halliburton. A field camp is located here, used to service the surrounding oil fields.
With oil prices falling to historic lows, companies are cutting back on drilling, reducing the need for Halliburton’s services.
Halliburton laid off hundreds of workers in Texas and Oklahoma.
Trucks and heavy machinery end up in lots waiting for the day when their services in the field will be needed again.
The Halliburton yard in Duncan serves such a purpose, visible in the satellite photo below (Figure 1).
A snapshot of this area can serve as a proxy for drilling activity. Less drilling means more equipment piles up, and vice versa.
A drawdown in idle equipment could serve as a leading indicator for drilling picking up, which itself serves as a leading indicator for US production.
This insight is particularly useful in today’s environment of demand curtailment amid COVID-19. US shale output rapidly fell, in response to lower oil prices, helping the market rebalance.
People now want to know whether crews will be dispatched again to resume drilling.
Using satellite radar imagery, we can monitor the Duncan yard, gauging the level of fullness over time.
We are able to determine the amount of man-made objects in an area, e.g. number of trucks.
The results are plotted in Figure 2 below. The y-axis represents an index of activity. A score above 1 means more activity than normal during the period. A score below 1 means less activity than normal.
The activity index has been rising since 2019, with a notable bump higher since March when WTI prices fell from $45 per barrel to $20/b.
As you would expect, these trends have been consistent with the rig count.
Halliburton’s Duncan yard has been filled with machinery as the number of active rigs in nearby shale plays drops.
The rig count for the Woodford Shale play, part of the Anadarko Basin, fell steadily since 2019, then plunged starting March 2020.
The video below (Figure 3) shows the inverse relationship between activity in the Duncan yard and rig count.
Oil production will decline as a result, but there is an offsetting factor. Operators have become skilled at getting the most out of every well, optimizing efficiency and production per rig.
Figure 4 shows the improvements in drilling productivity in the Anadarko Basin, home to the Woodford Shale.
However, the challenges presented in this latest downturn are unprecedented.
The US rig count (Figure 5) has dropped to all-time lows in the face of historic low oil prices.
The oil price crash began late February as the global economy went into a tailspin.
A few weeks later, the rig count also began to drop like a stone. In just eight weeks, the number of active rigs was cut by more than half.
This was a much quicker response than normal. The US rig count typically follows changes in WTI with a lag of 4-5 months.
In the Permian Basin, the largest oil producing area in the US, the rig count halved to 200 between March 20 and May 8.
This has been a painful time for the US oil industry, but there is a silver lining.
Not only has the rig count fallen, but so has US production (Figure 8). Why does that matter?
Because the decrease in shale output lessens the glut in the oil market. Combined with OPEC supply cuts, these are tentative signs of the market rebalancing.
That’s been positive for oil prices, which of course, is welcome news for all producers.
Benchmark crude futures have risen in May, with NYMEX WTI nearing $30/b, though that’s still down from more than $60/bbl in early January.
Check back here for updates on Halliburton’s Duncan yard to be the first to identify an inflection point, or drawdown, in idle equipment which could serve as a leading indicator for drilling and US production.
You can view this blog and other findings in our COVID-19 Dashboard.
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