DRILLING MARKET FOCUSIndustry executive warns of rig exodus from US waters

April 25, 2003
Total US drilling activity dipped slightly this week, while offshore rig utilization and demand remained unchanged in the US sector of the Gulf of Mexico, industry sources reported Friday.

Sam Fletcher
Senior Writer

HOUSTON, Apr. 25 -- Total US drilling activity dipped slightly this week, while offshore rig utilization and demand remained unchanged in the US sector of the Gulf of Mexico, industry sources reported Friday.

But at an offshore industry outlook conference Thursday, a top executive of an offshore drilling contractor warned that a continuing migration of rigs out of US waters may trigger a major shortage of jack up units if drilling activity picks up as some expect in the second half of this year.

Rig Exodus
A total of 31 rigs have left US gulf waters since January 2001, and more are likely to follow, said Paul L. Kelly, senior vice president of Houston-based Rowan Cos. Inc. at the annual international offshore industry outlook conference in Houston, sponsored by the National Ocean Industries Association and the Texas Sea Grant Program.

It's not the first time that US rigs have been lured to more lucrative foreign markets. However, Kelly said, "the important difference this time" is that most of those rigs are leaving on contracts that run for a year or more.

Moreover, 17 of the rigs that have left were cantilever jack ups designed to work in 300-350 ft of water. That, said Kelly, is the most popular class of rig in the gulf, the kind that will be needed for deep gas drilling in the relatively shallow gulf shelf waters if the US Minerals Management Service's proposal to expand royalty relief to natural gas wells sparks an anticipated increase in drilling activity (OGJ Online, Apr. 24, 2003).

He said 19 more jack ups are likely to leave US waters for international markets through 2004. These include 5 to Mexico, 4-5 to Trinidad and Tobago, 2-3 to West Africa and 5-6 to the Middle East.

However, Kelly said, "The numbers for Trinidad and Mexico could be conservative." He said a meeting of Mexican government and industry officials last week indicated another 15 rigs might be contracted through 2004 to step up Mexico's exploration and development program for natural gas.

Available rigs
Of the 129 jack up rigs supposedly available for the gulf market, Kelly said, 15 are cold-stacked, leaving only 114 in ready-to-work condition.

If drilling activity in the US gulf were to rebound to the level of the 1998 up cycle, he said, the industry would need a total of 128 rigs working—14 more than now available—to satisfy demand. However, if rig demand in the gulf jumped to the more vigorous level seen in 2001, he said, the industry would need 145 rigs, 31 more than it has now. And if 19 more rigs leave the gulf before drilling rebounds, the industry would face a shortage of 33-50 rigs to meet those previous levels of activity, said Kelly.

There are 24 new offshore rigs now under construction though 2006, Kelly said, including 10 jack ups, 11 semisubmersibles, and 3 tenders. However, he said, "Only half of these are likely candidates for work in the US Gulf of Mexico."

Rowan is building the first of four jack ups in its new Tarzan class. These rigs have the same heavy drilling equipment as the company's Gorilla class rigs but are smaller and not designed to work in harsh environments. However, they are perfect candidates to drill for deep gas deposits in gulf waters of 250 ft or less, said Kelly.

Current rig counts
There are 986 rotary rigs working in the US and its waters this week, 8 fewer than the previous week but up from 766 a year ago, officials at Baker Hughes Inc. reported Friday

US land activity was down 9 units with 861 rigs working this week. Activity in inland waters also declined by 2 to 16. However, offshore drilling increased by 3 rigs to 104 in the Gulf of Mexico and 109 for the US as a whole.

There were 98 rotary rigs working in Canada this week, 11 less than last week but up from 84 last year.

The number of rigs drilling for oil in the US was down 7 to 179. The number drilling for natural gas slipped by 1 to 804. There were 3 rigs unclassified. Directional drilling increased by 5 to 251, while horizontal drilling was up 2 to 67.

Texas led the week's decline, down 5 units with 439 rotary rigs still working. Louisiana was down 4 rigs to 153. New Mexico's rig count increased by 3 to 75. Rig counts in the other major producing states were down 1 each to 123 in Oklahoma, 37 in Wyoming, 17 in California, and 11 in Alaska.

The number of mobile offshore rigs under contract in the Gulf of Mexico was unchanged at 123 of the 182 total units reported as ready for work in those waters, leaving utilization flat at 67.6%. However, activity in the European market increased for the first time in some weeks, with the addition of 1 rig to both the fleet size and the number contracted. The utilization rate in those waters inched up to 85% with 85 units contracted out of 100.

A newbuild jack up rig was added to the global fleet, increasing the total fleet size to 659 units. The number of contracted rigs also increased by 1 to 531. That put worldwide utilization among mobile offshore rigs at 80.6%.

Contact Sam Fletcher at [email protected]