First Peek at $40/bbl

In this report, we have taken a closer look at 2021E projections with oil prices above $40 for first time since early March. At that time, over 700 horizontal rigs and 250 fleets were fully utilized in the U.S., 200% above the current counts.  While the knee-jerk reaction is to return to prior activity levels, this is UNLIKELY due to 1) investor pressure on capital discipline/FCF generation 2) reduced capital availability (closed equity markets, reduced bank borrowing capacity) 3) de-emphasis on volumetric growth 4) bulging DUC inventory and 5) further efficiency gains. In our base case, we are assuming only modest rig / fleet count growth in 2021E (300-350, ~135 respectively) with limited upside to 350-400 rigs (165 fleets) if oil prices remain above $40/bbl.

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