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U.S. Rig Count Forecast

The rig count forecast is based on a correlation developed by PetroStrategies, Inc.  We revised our regression to include future prices for natural gas. The regression used is:

Rig Count = 594.43 + 12.682*West Texas Intermediate Crude Price lagged 8-months + 34.542*Natural Gas Futures price lagged 8-months.

The equation explains 85.8% of the variance in rig count with a standard error of the estimate equal to ±134. 

We have developed a new forecast that includes the current rig count.

Rig Count = 0.7645*US Rig Count lagged 8 months + 3.0108*West Texas Intermediate Crude Price lagged 8-months + 39.8771*Natural Gas Futures price lagged 8-months.

The equation explains 98.9% of the variance in rig count with a standard error of the estimate equal to ±145. 

The standard error increased due to the greater differences in the more recent data.

The forecasts since September 2008 have been much higher than the actual rig count.  We believe that this is due to three reasons.  One, the oil and gas price projections used in planning drilling programs were much lower than the market values.  This is a reflection of skepticism and conservatism by industry executives.  Two, the availability and cost of drilling rigs also had a negative influence on rig activity.  The third factor is that drilling activity has declined faster than expected and reflects pessimism in the recovery of the world economy and OPEC's ability to control oil prices.  Our correlations have used a lag time of 8-months and recent drilling activity reflects a lag time of 4-months.