U.S. oil companies sidelined 24 oil-drilling rigs this week, according to Baker Hughes’ rig count released Friday, bringing the count to its lowest point since October 2010.

This week’s drop sank the number of active U.S. oil rigs to 679. About 930 oil-chasing rigs have been idled since the count’s 2014 peak in October.

The total rig count, including oil, gas and other drilling units, fell by 27 to 905. That’s down by 1,025 units from the peak last year. The rig count, watched closely as a barometer of future U.S. production, has been falling for more than five months and was last below 905 in June 2009.

Thirteen of the rigs taken out of service this week were in Texas, cutting the state’s count to 380, down from 906 last November.

High-grading

Still, it’s unclear how effective the rig count is as an indicator of future production, now after the advent of multiple drilling technologies that have enabled producers to cut weeks out of the time it takes to drill shale wells.

At an energy conference last week, IHS researcher Raoul LeBlanc said his firm has tracked where oil companies are idling rigs, and its analysis suggests rigs are being sidelined in the least prolific areas.

“In terms of growing production in the United States, a relatively small number of wells do the heavy lifting,” LeBlanc said. “This opens the possibility of significant high-grading over the course of the next couple of years.”

Because of discounts from oil-equipment suppliers and a migration away from the least productive shale regions, IHS estimates a dollar spent in the U.S. oil patch next year will bring up 45 percent more oil than it did in 2014.

Output falling

Yet the shale boom is waning. The U.S. Energy Information Administration last month forecast that the nation’s oil production growth would be overtaken by sharp declines in output from older shale wells. It said U.S. output growth should slip by 57,000 barrels a day by May.

LeBlanc said because of the industry’s increasing capital efficiency, IHS believes U.S. production could start growing again by the fourth quarter of this year or the first quarter of 2016. Output could climb even quicker once producers unleash the hundreds of thousands of barrels of oil currently being stored underground in wells that have been drilled but not completed.

The Baker Hughes data shows vertical rigs — many of which are more advanced and capable of drilling faster than vertical wells — now make up 77 percent of the U.S. rig count, up from 70 percent at the count’s peak in October. The horizontal count first hit 20 percent of the total count in 2007, around the time the U.S. shale boom began.

Source: Fuel Fix