The number of working rigs has plummeted in the last four to six weeks. Domestic drilling fell by 50 rigs, and drilling outside the United States and Canada fell by 34 rigs. The loss of international activity is particularly important to U.S. oil service companies, as these wells are intensive users of services. This international activity is now at the lowest level since 1975, when Baker Hughes began counting these rigs. Natural gas-directed drilling is still holding up comparatively well, with offshore activity the strongest component.
Oil producers show signs of pulling back sharply.
As a result, service companies report backlogs have shrunk, and in some cases large, planned projects are being canceled. Some service companies are offering to take equity stakes in specific projects rather than being paid in cash. Ethylene even saw a significant inventory draw, although this was initially driven by hurricane-related shutdowns and then extended by high levels of outages associated with routine maintenance. The fundamentals remain weak for the industry, however, with low prices, low profits, inability to export and additional capacity coming on line soon from new construction. Some projects that saw their deals fall through in recent weeks have found alternate sources of credit, but others will simply not find financing now because lending standards have tightened significantly.