Sam Fletcher
Senior Writer
HOUSTON, Apr. 17 -- The upward trend in US drilling activity since the start of this year is likely to continue through this summer and boost day rates for premium offshore rigs in the second half of this year, said industry analysts.
"Drilling in the US continues to be much more attractive," said James L. Williams, president of WTRG Economics and publisher of Energy Economist Newsletter, despite continued "price uncertainty" and the fact that current "high prices will not hold over the life of most wells."
In a recent North American rig report, Williams said, "We expect the rate of increase in drilling activity to pick up in the coming weeks. Gas drilling activity should approach 1,000 (rigs) by the end of the summer and should be enough to boost gas production and refill abnormally low inventories in preparation for next winter's heating season."
As for oil, he said, "We do not expect significant increases in oil production, but (additional drilling) activity should be enough to maintain current levels of production."
US drilling activity increased by 15 rotary rigs to 994 working this week, up significantly from 749 during the same period last year, Baker Hughes Inc. reported Thursday, ahead of the Good Friday holiday. All of that increase was in drilling for gas, up 15 rigs to 805. The number of US rigs drilling for oil was unchanged at 186 this week; 3 units remained unclassified.
Land operations got the bulk of the weekly increase, up 11 rigs to 870. Offshore drilling increased by 4 rigs to 101 working in the Gulf of Mexico and 106 in US waters as a whole. Activity in inland waters was unchanged at 18 units.
Canada's rig count plunged by 66 units to 109 still working during the spring thaw. Last year at this time, only 99 rotary rigs were active in that country.
In the US, directional drilling increased by 13 rigs to 246 units, but horizontal drilling was unchanged at 65.
In a rare turn, California led this week's increase among the major producing states, up 3 rigs with 18 units making hole. Texas and Louisiana added 2 rigs each to 444 and 157, respectively. Oklahoma and Alaska were unchanged, with respective rigs counts of 124 and 12. New Mexico lost 3 rigs to 72. Wyoming was down 1 to 38.
The number of mobile offshore rigs under contract in the Gulf of Mexico increased by 1 this week to 123 out of 182 units available, said officials Thursday at ODS-Petrodata. That increased the fleet utilization rate to 67.6% in those waters.
Utilization and demand for European offshore rigs were unchanged for the second consecutive week, with 84 contracted out of 99 for 84.8% utilization. Worldwide, there was a net increase of 1 rig under contract to 530 out of a total fleet of 658. Global utilization among mobile offshore rigs inched up to 80.5%.
Drilling activity in the Gulf of Mexico remains sluggish at the moment, but Angeline M. Sedita, an analyst with Lehman Bros. Inc., New York, expects to see a modest increase in drilling activity in those waters in the last half of this year, driven by "a diminishing rig supply" as premium equipment "continues to mobilize out of the region." She said, "In total, eight premium rigs have mobilized out of the gulf since May 2001."
The US sector of the Gulf of Mexico "is clearly divided into two markets—premium equipment and commodity equipment," Sedita said. "The utilization rate for premium equipment is currently at 94%, while commodity rigs are only at 49% utilization." As a result, she said, "Leading edge day rates for premium equipment are $29,200, and commodity rigs are currently going to work at $24,900."
Sedita anticipates premium rigs ultimately will realize greater gains in day rates than will the standard and commodity jack ups. "This will be drive by a lower supply of premium equipment and a flight to quality by the larger E&P companies," she said.
Rowan Cos. Inc., a Houston-based offshore drilling contractor, "will be the leading beneficiary of any recovery in the Gulf of Mexico" because of "its premium jack up fleet," Sedita reported Thursday. "The company has 20 of 22 rigs located in the (gulf)," she said. "Current (gulf) jack up utilization for the company is 100%, and it indicated that the higher spec units were beginning to see better job opportunities."
Ensco International Inc., Dallas, also will benefit from an upturn in gulf drilling activity since it is "levered to the premium jack up market," said Sedita in a separate analysis Thursday of that drilling contractor.
Rowan's prospects for deep gas drilling remain firm, she said, with 12-14 of its jack up rigs in the gulf expected to be drilling deep gas wells in the second quarter, up from 11 in the first quarter. "Rowan has had conversations with several majors regarding deep gas prospects and believes some of its current customers plan to accelerate their deep gas programs," said Sedita.
"Mirroring the trend toward deep gas prospects offshore, the company's land segment has witnessed a move toward deeper plays onshore. The company currently has 14 of 18 land units working, 10 on deep gas projects in Texas and Louisiana," Sedita said. "Day rates for the land units improved by $300/day from the fourth quarter (of 2002) and are approximately $800/day above the first quarter of 2002. Permitting activity suggests that the improvements in the company's rig (utilization) and day rates will continue through the second quarter."
Meanwhile, she said, "In order to maintain utilization during the downturn in the Gulf of Mexico, drilling contractors had been forced to contract larger, more capable rigs to shallow-water, less-difficult projects at lower day rates. Rowan believes this trend has reversed, and most of its Gorilla units are now working on more technically challenging projects in deeper water.
"High-spec projects typically command higher day rates, and we believe as the larger rigs continue to work on the projects for which they were designed, we should see some improvement in day rates," said Sedita.
She reported Encana Corp., Calgary, is in final negotiations—"the only issue left is the start date"—with Rowan for a 90-day contract to drill one well off Eastern Canada with its Gorilla V jack up rig, "followed by some plugging and abandonment work, with options for two more exploratory wells, which Rowan believes will be drilled." Sedita said Canadian Superior Energy Inc., Calgary, also is negotiating for the Gorilla V to drill a 19,000 ft well on its Marquee prospect off Nova Scotia. "Canadian Superior has received approval for the second well, and Rowan drilled the original well, which should put the company in line for the follow-up work," she said.
Contracts in place for the Gorilla V and Gorilla VII rigs "will add $300,000/day and $9 million/month (to Rowan's) revenue, which should narrow the company's loss in the second quarter," said Sedita.
Contact Sam Fletcher at [email protected]