US rig count near 19-year high and climbing

Sam Fletcher
Senior Writer

Baker Hughes Inc. reported 1,295 rotary rigs drilling in the US during the week ended Feb. 18, the highest weekly rig count since late February 1986, when the count was at 1,308.

There are major differences between the two periods, however. In 1986, US drilling activity peaked during the first week at 1,915 rotary rigs, then plunged to 663 that summer as Saudi Arabia opened its taps and pushed down crude prices in a battle for market share. US drilling rebounded slightly to 988 at the end of 1986, but crude prices and rig counts remained depressed for years afterward.

This year, the US rig count opened at 1,242 rotary rigs, has trended slowly upwards over the first 2 months, and generally is expected to keep climbing. Needless to say, both crude and natural gas prices are nominally much higher today than in 1986 and also are likely to remain so.

Rig day rates improve
The number of drilling permits issued by the 30 states monitored by Lehman Brothers Inc., New York, increased by 3.2% during January, adjusted for comparable numbers of filing days. The biggest increases were in Wyoming, (up an adjusted 26%), Texas (up 11%), and Oklahoma, (up 14%). "The modest increase in January suggests an improving US rig count in the coming months," said Lehman Brothers analysts.

Drilling contractors are cashing in on currently increased activity through higher day rates for their rigs. Transocean Inc., Houston, recently announced that its 10,000-ft capacity Discoverer Spirit drillship in the Gulf of Mexico was awarded an 18-month contract for an all-time global high rate of $270,000/day, up from the previous record of $240,000/day. "The company sees day rates for ultra-deepwater rigs approaching $300,000," said Lehman Brothers analysts.

"In the North Sea midwater market, day rates could rise to 1997-98 peak levels of $140,000-150,000 by the end of 2005, up from the $110,000 [level]," the analysts said. "Today, most international jack up [rig] markets are near full utilization, and there is incremental demand for units in the Middle East, Southeast Asia, and West Africa. Accordingly, we expect additional day rate gains across the regions."

Oil price, demand both grow
Despite a nearly 60% jump in crude prices during the past 2 years, US demand increased by 1.8% in 2004, including a sharp acceleration of more than 3% from year-ago levels in the second half of last year, when prices were hovering near $50/bbl, said analysts in the Houston office of Raymond James & Associates.

Moreover, they noted, "Unlike the 1970s, when higher oil prices drove sharp increases in core [US] inflation, the recent rise in oil prices has occurred with a decrease in core inflation." They concluded, "It appears that the historical oil demand destruction relationship has changed." Scott Brown, senior economist at Raymond James, offered a list of possible explanations:

-- Real per capita income and automobile [performance] efficiency increased at higher rates than oil prices, so that a smaller percentage of a person's income is now spent on energy.

-- In 1973-74, the Middle Eastern oil embargo caused prices roughly to triple to $10/bbl from $3/bbl. The Iranian revolution of 1979 also almost tripled oil prices to $35/bbl from $12/bbl. "By comparison, the recent move from $35 to $45[/bbl] is an increase of only 29%. Even when measured from the September 2003 trough of $27[/bbl], prices have increased by about 65%," analysts said.

-- As the US economy has shifted from manufacturing to services, energy intensity has declined so that energy is a smaller part of the overall US economy.

-- The labor market, specifically unionized labor, has less impact on inflation, with fewer labor contracts geared to changes in the consumer price index [CPI].

-- Increased worker productivity through application of new technology over the last 5 years has offset higher material costs.

-- Corporate margins are being squeezed so that it's harder for companies to pass along higher energy costs to consumers.

-- The "wealth-effect" from higher real-estate prices mutes the impact of higher energy prices on consumer spending.

-- The "Wal-Mart effect" of "big box" stores has "whittled down middleman costs and outsourced many of their products from lower-wage countries."

Brown asked, "Are we really measuring the CPI correctly? Even though it is probably a very small part of the oil price-to-inflation decoupling, one can argue that today's CPI is not capturing the full price increase that the consumer is experiencing. Today's CPI is probably not reflecting a meaningful increase in rent, healthcare, or technology costs."

Related Articles

US Forest Service takes no stance on fracturing in national forest

12/12/2014

The US Forest Service has dropped a proposal that would have banned hydraulic fracturing in the George Washington National Forest.

Weak crude prices could threaten Bakken production growth

12/12/2014 Bakken shale production set another record in August, but weakening crude prices and flaring reduction efforts threatened to temper production grow...

BHI: US rig count forced down by large losses in Texas

12/12/2014 Forced down by large losses in Texas and specifically the Permian basin, the US drilling rig count plummeted 27 units to settle at 1,893 rigs worki...

Husky reports start of steam operations at Sunrise oil sands project

12/12/2014

Husky Energy, Calgary, reported the start of steam operations at the in situ Sunrise Oil Sands Project in northeastern Alberta.

TAEP: TPI still peaking, but ‘contraction unavoidable’ as oil prices fall

12/12/2014 The Texas Petro Index (TPI), a composite index based on a comprehensive group of upstream economic indicators released by the Texas Alliance of Ene...

Independent assessment hikes Husky heavy oil resources

12/12/2014 Husky Energy Inc., Calgary, says an independent assessment increases its heavy oil resources in the Lloydminster region of Alberta and Saskatchewan.

US needs more data before ending crude export ban, House panel told

12/11/2014 Much more environmental impact information is needed before the US can reasonably remove crude oil export limits, a witness told a House Energy and...

BOEM raises offshore oil spill liability limit to $134 million

12/11/2014 The US Bureau of Ocean Energy Management increased the liability limit for oil-spill related damages from offshore operations to $134 million from ...

Stone drills successful Utica exploration well

12/10/2014 Stone Energy Corp., Lafayette, La., reported that its Pribble 6HU well in Wetzel County, W.Va., flowed from a 3,605-ft lateral at 30 MMcfd during t...

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected