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U.S. drillers upbeat Over a two-year period, the U.S. fleet suffered only a net three-rig loss Petroleum News
The U.S. drilling rig market is coming back nicely following a tough 2002, but the recovery “is slower than would be expected” given this year's robust oil and gas prices, researchers concluded in the closely watched ReedHycalog annual survey of rig contractors.
Sixty contractors participated in this year's survey, representing 34 percent of all contractors in the United States — companies owning about 72 percent of the total rig fleet. Results were released to the public Sept. 26.
Eighty-four percent of the contractors surveyed reported an increase in rig activity compared to 2002, with an average increase of 28 percent during the span of the “rig census,” conducted from May 10 through June 23. Nearly all firms cited higher commodity prices as the reason for the gain. And most believed prices would remain at higher levels and that drilling would increase further in the future.
But while rig utilization was at a “solid” 78 percent versus 67 percent in 2002, the actual number of active rigs in the United States fell to 1,334 from 1,593 at the 2001 peak, when rig utilization reached 93 percent, according to the survey. Still, this year's 78 percent utilization was in line with the historical average of 74 percent.
“Most rig owners believe the industry has stabilized somewhat, and they are optimistic as long as product prices are sustained,” ReedHycalog said. 45 rigs leave U.S. but fleet size only drops by three over two-year period Despite contractor optimism, the survey uncovered a few troubling statistics. For one, the number of rigs leaving the United States this year, 45, was exceptionally high when compared to the six that left during 2001.
“Rigs moving out of the U.S. have not been this numerous in more than a decade,” ReedHycalog said, adding that offshore units accounted for a large portion of the departing rigs.
However, over a two-year period, the U.S. fleet suffered only a net three-rig loss. Total rig additions numbered 169, while deletions totaled 172, “showing overall fleet stability despite changes on a rig-by-rig basis,” ReedHycalog said.
But the 172 deletions recorded this year compared to only 96 deleted in 2001. Moreover, rigs auctioned for parts, or “cannibalized” to support other units, tallied 59 in 2003, more than double the number of rigs that were scrapped in 2001. However, many of the rigs cannibalized in prior years are being used to build new units that are coming back into the fleet as rigs assembled from components, according to the survey.
A surge of newly manufactured rigs entered the market this year, with contractors reporting 44 new land rigs and four offshore units. Those statistics are significant because the number of new rigs entering the market each year has averaged just 3.4 since 1988. Rig utilization down from 2001 Still, every U.S. region covered in the survey cited rig utilization decreases for 2003 versus 2001. The Gulf Coast showed the largest drop, down 23 percentage points to 75 percent over the two-year span.
Because higher rig rates generally improve operating margins, “it is not surprising that this continues to be a top contractor concern,” the firm said, adding that the average land rate had increased 6 percent since 2002 and the average offshore rate had decreased 8 percent.
The survey indicated that crew availability was the second highest concern among contractors because “industry instability has created a shortage of qualified labor, whose absence is magnified when commodity prices go up and contractors need to put additional rigs back to work.”
Insurance costs were the third greatest because they “have increased in recent years, and they now appear to be affecting drilling economics significantly,” ReedHycalog said.
Most contractors reported increased maintenance and labor costs, with 83 percent of those responding saying they expected to spend more on maintenance than they did last year. On average, they believed costs would rise about 17 percent.
When contractors were asked at what level commodity prices needed to be to have a positive effect on their business, their average estimate was $29.70 per barrel for oil and $6.30 per thousand cubic feet for natural gas. However, land rig owners said that rig rates would need to increase 65 percent before rates would support purchasing newly manufactured rigs.
The survey also found that while industry consolidation continued in 2003, the rate of mergers and acquisitions could be slowing. The number of rig owners dropped by just 12 over the last two years, compared to 17 in 2001.
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