NEW YORK, Jan 20 (Reuters) - Oil drilling in the United States will continue to fall in the first half of this year, and could even halve, according to major oil service companies looking to past slowdowns as a guide.
Baker Hughes Inc and Halliburton Co, two of the largest U.S. oil service firms, were outwardly confident at the release of quarterly earnings on Tuesday. They have weathered downturns in the past, and this time is no different, they said.
But as these companies turned to the map of past price meltdowns to show what might happen in 2015, they agreed that drilling activity would continue to slow sharply in the first quarter of 2015 and could remain subdued for months more.
The predictions, which remain somewhat vague even seven months into the price slide, will come as little surprise to investors who have already noticed a slowdown in drilling activity following a 60 percent fall in oil prices since June.
But they do offer the clearest signal yet of how two of America’s most integral energy powerhouses view the downturn.
“We can look at previous cycles for insight,” Jeff Miller, president of Texas-based Halliburton said on a conference call with analysts on Tuesday. “While history doesn’t always repeat, sometimes it rhymes.”
The way the rig count reacted to price decreases in 2001-2002 and 2008-2009 is now offering some insight into what might happen this time around, executives from both Baker Hughes and Halliburton said.
“In those (past) cases we experienced a rapid correction to the rig count going from peak to trough over a three-quarter period,” Miller said.
Between July 2001 and April 2002, the oil rig count, a fifth of today’s size, fell 35 percent from 223 to 145, according to a long-running weekly survey published by Baker Hughes. Over the same time period the total oil and gas rig count dropped from nearly 1,300 to 738.
A similar turnaround this time would mean that the oil rig count, which began to fall in October, may not bottom out until half way through the year.
The fall in oil prices has rippled across the U.S. energy industry in recent months, forcing companies to idle rigs at the quickest rate in 20 years, cut costs and lay off staff. With relatively deep pockets, Baker Hughes and Halliburton are well placed to stave off the impacts of a downturn compared with the hundreds of smaller firms that are being squeezed by severe cost cuts.
But they are not beyond concern. Baker Hughes said on Tuesday that it would reduce capital expenditure by 20 percent in 2015, and warned of a continued reduction in the rig count. Baker Hughes expects the average rig count in the first quarter of 2015 to fall 15 percent versus the previous quarter’s average, it said on Tuesday.
“What we have learned in the past is that when the market turns down, it turns swiftly,” Baker Hughes chief executive Martin Craighead said on a conference call. “In each of the last three downturns dating back to the 1990s, we have seen North American rig counts fall between 40 percent and 60 percent in the space of only 12 months.”
It is unclear if Craighead was referring to the total rig count or just the oil rig count. But a 50 percent reduction in the U.S. oil rig count would bring rigs down from a record high of 1,609 in November to 800 by the second half of 2015, the lowest level since early 2011.
The areas expected to be worst hit include the Bakken shale in North Dakota and the Permian Basin in Texas, Craighead said. (Reporting by Edward McAllister; Editing by Jessica Resnick-Ault and Lisa Shumaker)