Drilling activity continues to diminish

Sam Fletcher
OGJ Senior Writer

HOUSTON, May 15 -- The US rig count continued to contract, down by 10 to 918 rotary rigs working this week, less that half of the 1,862 units that were active in the same week a year ago, said Baker Hughes Inc.

Land operations shouldered the latest loss, down 13 rigs to 855 drilling. Inland-water activity remained unchanged with 7 rigs working. Offshore drilling increased by 3 to 55 rotary rigs working in the Gulf of Mexico out of a total of 56 on federal offshore leases.

Of the rigs still working, 728 are drilling for natural gas, down 2 from the previous week. The number drilling for oil fell by 9 to 181. There were 9 rigs unclassified. Horizontal drilling was down 1 to 379 rigs. Directional drilling totaled 160 rigs, 4 fewer than last week.

Texas continued to lead the decline among major producing states, down 13 rigs with 342 still working. Arkansas lost 4 rigs to 44. North Dakota and New Mexico laid down 3 rigs each, to respective counts of 33 and 31. California was down by 1 to 20. Oklahoma was unchanged at 84.

Wyoming and Alaska increased by 1 rig each to 36 and 6, respectively. Colorado was up 2 to 45 rigs working. Louisiana's rig count jumped by 8 to 146. In other states of interest, Pennsylvania gained 3 to 31. Utah increased by 1 to 15, and West Virginia was unchanged with 23 rotary rigs drilling.

Canada's rig count increased by 5 to 68 this week, down from 132 units working a year ago.

While assessing several oil field service companies this week, James C. West at Barclays Capital Inc. in New York had some general observations about drilling markets. "The natural gas market remains difficult, and we believe a significant recovery in gas-directed activity is unlikely until mid-2010. A modest pick-up in oil-directed activity near term and aggressive cost cutting should partially mitigate this weakness," he said.

Commenting on Basic Energy Services Inc. (BAS) in Midland, Tex., West said, "Although conditions have stabilized somewhat within the well servicing market and pricing appears to be firming, we continue to believe natural gas fundamentals will not support a meaningful recovery in utilization until mid-2010." He said, "While maintenance activity has picked up, utilization is expected to remain low, particularly in the Rockies and Midcontinent. In response, BAS stacked one third of its well-service fleet and is scaling back operations in less active markets."

In his assessment of Parker Drilling Co., Houston, West said, "While utilization has recently improved for Parker's US barge fleet, we believe business conditions for the company's domestic-oriented businesses are likely to remain challenging into 2010, given the likelihood of continued weakness in natural gas activity." He noted, "Around one third of Parker's international fleet will come off contract in 2009; however, bidding activity remains high, and many rigs are likely to find work with some gaps in between contracts. Southeast Asia is the most challenging region, while the Americas is relatively strong."

Looking at offshore marine services, West said, "We believe weakness in the shallow-water Gulf of Mexico and the North Sea will continue to pressure vessel day rates and utilization during 2009." He said, "The shallow-water gulf has become increasingly challenging—average marine vessel utilization fell to 81% from 88% in the fourth quarter, with significant declines in gulf-levered asset classes. We believe this market will remain difficult through 2009. Deepwater utilization and day rates are relatively stable."

Contact Sam Fletcher at samf@ogjonline.com.

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