UBS: Efficiency Gains Reshaping Shale Oil Landscape; Stagnant Rig Counts Benefit Upstream, Drag Down Oil Services

Zhitong Finance APP has learned, according to a research report released by UBS on Wednesday, that U.S. oil and gas producers are finding ways to increase output without significantly expanding drilling activity. This trend may keep the industry's active rig count relatively stable through 2027.

UBS chief analyst Josh Silverstein said third-quarter earnings updates show exploration and production companies are benefiting from faster drilling speeds, improved well performance, and longer horizontal wells. These improvements allow operators to increase production while maintaining existing equipment levels.

These findings hold significance for investors in oilfield services companies—whose revenues partially depend on demand for rigs and completion equipment. Higher efficiency may limit the need for additional rigs, even if output increases, potentially restricting revenue growth for equipment suppliers while benefiting producers through lower development costs.

Efficiency improvements

Producers are increasingly using simultaneous hydraulic fracturing operations to complete wells more efficiently. Permian Resources reported drilling its fastest well ever, while Gulfport Energy and Murphy Oil highlighted plans to adopt continuous drilling schedules through 2027 to reduce downtime and improve supply chain efficiency.

Longer horizontal wells are also enhancing capital efficiency. Devon Energy reported drilling a five-mile horizontal segment in the Marcellus shale and plans to drill 50 four-mile horizontal wells across its portfolio by 2027. Antero Resources completed its longest-ever five-mile horizontal segment and is considering drilling wells over 30,000 feet (9.14 kilometers) on newly acquired land.

Service costs and inflation pressures

UBS said that heading into 2027, producers are facing higher costs for diesel, tubing, transportation, and specialized equipment. However, companies are attempting to limit these impacts through advance procurement agreements. EOG Resources has locked in about 60% of its 2027 service needs and secured about half of its casing and tubing requirements.

Relatively stable rig count

According to UBS Evidence Lab data, the four-week average number of active rigs in the lower 48 U.S. states is 634, down by one from the previous week but up 16% from the end of 2025. Among them, oil-directed rigs are up 36% since the end of last year, while gas-directed rigs have declined 24%.

Among the major operators, ExxonMobil (XOM.US) remains the listed producer with the most active rigs at 37, followed by Devon Energy (DVN.US) and ConocoPhillips (COP.US) with 30 each, EOG Resources (EOG.US) with 23, and Occidental Petroleum (OXY.US) with 21. Including integrated producers, the companies covered by UBS account for 44% of active rigs.

The report suggests investors should focus more on drilling productivity, capital efficiency, and oilfield service pricing, rather than relying solely on rig count as an indicator of industry growth. UBS expects efficiency improvements to support production growth even if drilling activity doesn’t accelerate significantly next year.