DRILLING MARKET FOCUS
US drilling activity continues to creep higher

By OGJ editors

HOUSTON, July 3 -- US drilling activity increased slightly this week, up 3 rotary rigs to 1,077 working, officials at Baker Hughes Inc. reported Friday. That marks a significant gain from the 862 units that were working during the same period last year.

As usual, the increase was primarily in land operations, a gain of 4 rigs to 953 this week. Offshore activity increased to 2 rigs to 103 active in the Gulf of Mexico, but that addition was reduced to 1 for a total 107 active offshore rigs in US waters as a whole. Activity in inland waters was down by 2 rigs to 17.

Canada's rig count jumped by 65 to 375 this week, up from 263 a year ago.

Among US rigs, 925 were drilling for natural gas this week, 1 more than the previous week. However oil drilling increased by 4 rigs to 148. Four rigs remained unclassified. Directional drilling increased by 6 units to 276. Horizontal drilling was up by 4 rigs to 89.

Louisiana leads gain
Louisiana accounted for most of the gain, despite being lashed by Tropical Storm Bill earlier this week. The storm moved through the central gulf and made landfall Monday in south-central Louisiana, producing power outages and isolated flooding of low-lying areas, with as much as 10-15 in. of rain in some spots. Flash flood warnings were issued along the Gulf Coast from Louisiana to Pensacola, Fla. (OGJ Online, July 1, 2003).

However, the US Minerals Management Service reported only moderate disruption to oil and natural gas operations in the gulf as a result of the storm. Officials reported some 250 MMcfd of gas output was shut in by producers, or less than 2% of the 14 bcfd of gas produced from offshore fields (OGJ Online, July 2, 2003).

Louisiana's rig count increased by 3 to 157 rotary rigs. Wyoming and California added 1 rig each, for respective totals of 62 and 24. Alaska's rig count was unchanged at 9 for the week. All of the remaining major producing states registered declines, however. Texas was down 1 rig with 465 still working this week. Oklahoma and New Mexico lost 3 rigs each to 126 and 64, respectively.

ODS-Petrodata, Houston, reported demand for mobile offshore rigs in the Gulf of Mexico was unchanged this week, with 129 units under contract out of an available fleet of 179. That kept the fleet utilization rate at 72.1% in those waters.

Offshore activity in Europe also was unchanged this week, with 83 rigs contracted out of the 100 available, for a utilization rate of 83%. Worldwide, however, 1 mobile offshore rig was added to the world fleet, bringing the total number of available rigs to 659 while the number under contract was unchanged at 529. That caused the global utilization rate among mobile offshore rigs to dip slightly to 80.3%.

Drilling trend
"The general trend in US gas drilling activity over the last year has been one of recovering development activity, but weakening exploration activity," said Paul Horsnell, J.P. Morgan Securities Inc., London.

"A situation where companies are prepared to develop but not explore does raise some questions about the quality of what is being developed, with the suggestion being that the incremental projects may by and large be smaller than usual and liable to play out quickly," he said.

"Over the last week, both development and exploration nudged up," Horsnell said. During the last week of June, he said, gas development drilling was 17.4% higher than during the same period a year ago, but gas exploration was 19% less. Oil development drilling during the final week of June was up 42.9% from June 2002, while oil exploration was unchanged. Oil drilling on federal offshore acreage in the Gulf of Mexico remained at zero last week, Horsnell said.

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