DRILLING MARKET FOCUS
US drilling dips slightly as Canadian rig count climbs

By OGJ editors

HOUSTON, June 6 -- US drilling activity dipped this week with the number of active rotary rigs down 5 to 1,054 but up from 847 during the same time a year ago, Baker Hughes Inc. officials reported Friday.

The number of land rigs working in the US increased by 1 to 932 this week, but rotary rigs working offshore decreased by 4 to 106 in the Gulf of Mexico and 110 for the US as a whole. Drilling activity in US inland waters was down 2 to 12.

The number of rotary rigs working in Canada was up 10 to 268 this week, compared with 180 last year.

Of the rigs working in the US, those drilling for oil dipped by 1 to 159. There were 892 rotary rigs drilling for natural gas this week, 4 fewer than last week. There were 3 rigs unclassified.

In a report issued Thursday, Paul Horsnell, an analyst at J.P. Morgan Securities Inc., London, said US gas exploration hit its highest level in the week ended May 30 with 149 wells exploring for gas. However, he said, that was 18% fewer than last year and more than 50% below peaks in 2001. Only 14 wells were exploring for oil last week. All of the other active wells were involved in development drilling

This week, directional drilling in the US declined by 12 to 269 rotary rigs. Horizontal drilling increased by 10 to 83.

Louisiana led this week's decline in drilling activity, dropping 9 rigs to 152 still active. Texas and Oklahoma were down 5 rigs each to 483 and 127, respectively. Rig counts were unchanged at 71 in New Mexico and 10 in Alaska.

However, the number of rotary rigs working in Wyoming jumped by 9 to 63 this week. California's rig count increased by 4 to 21.

Mobile offshore rigs
The number of mobile offshore rigs under contract in the US sector of the Gulf of Mexico was unchanged this week at 126 out of the 182 available, for an utilization rate of 69.2% in those waters, said officials Friday at ODS-Petrodata, Houston.

However, the rigs under contract in European waters declined by 2 to 86 out of a fleet of 100. That dropped utilization to 86%. Worldwide, there was a net decline of 3 in the number of mobile offshore rigs under contract this week. Total utilization among mobile offshore rigs dropped by a half point to 80.1%, with 528 contacted out of a global fleet of 659.

First quarter activity
US rig activity in the first quarter of this year increased by 6.3% from year-ago levels to an average 899 rigs working during that period, said Patrick McGeever, Fitch Ratings Ltd., in a May report. The average number of rigs drilling for oil increased by 8% during that period, while gas drilling was up 6%, he said.

Canada's average rig count jumped to 493 in the first quarter, a whopping increase of 29% from the first quarter of 2002, McGeever reported. "This large increase suggest that operators are now focusing on drilling to provide natural gas used in oil sands projects and to replenish below-average (US gas) storage," he said. "The remainder of 2003 should be bullish for the (US) rig count, particularly the natural gas rig count, due to gas prices that remain at more than $5/Mcf and inventories that linger below the 5-year average."

The international rig count registered a 10% annul increase with an average 1,240 rigs working in the first quarter of 2003, said McGeever. "Most of the increase was due to the large improvement in Canada," he said. However, drilling activity was up 10% in the Middle East and 8% in the Far East, he said. Drilling activity was down 13% in Europe, 4% in Latin America, and 2% in Africa. "Given where commodity prices are, activity internationally should be stronger throughout the year," he said.

Service sector stable
"The oil services sector has been reasonably stable due to rising rig counts, offset by pockets of weakness, particularly in the Gulf of Mexico, the North Sea, and Venezuela," McGeever said. Market conditions should strengthen, he said, "as Venezuelan production ramps up, independents enter the North Sea, and the effect of the expanded (US) royalty relief in the shallow waters of the Gulf of Mexico begins to take hold. For the most part, service companies continue to focus on improving their technology, cost structures, and capital discipline."

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