By OGJ editors
HOUSTON, May 30 -- US drilling activity continued to ratchet up with 1,059 rotary rigs working this week, 9 more than the previous week and up from 854 during the same period a year ago, officials said Friday at Baker Hughes Inc.
Land drilling accounted for the bulk of that increase, up 8 units with 931 rotary rigs working. Offshore drilling increased by 1 unit to 110 in the Gulf of Mexico and 114 for the US as a whole. Inland water activity was unchanged with 14 rigs working. As Canada's spring thaw dried up, the country's rig count jumped by 67 units to 258 this week, up from 164 a year ago.
Of the rigs working in the US, 896 were drilling for natural gas this week, 14 more than the previous week. The number of rigs drilling for oil declined by 4 to 160. There were 3 rigs unclassified. Directional drilling in the US increased by 10 to 281, while horizontal drilling was up 3 to 73.
Rig counts in Louisiana, Wyoming, and California increased by 2 units each this week to 161, 54, and 17, respectively. Texas and Oklahoma added 1 rig each for respective totals of 468 and 132. Alaska had 10 rigs working, unchanged from the previous week. New Mexico registered the only loss among the top producing states, with its rig count down 4 to 71.
The number of mobile offshore rigs under contract in the US Gulf of Mexico declined by 4 to 126 this week out of 182 available for work, officials reported Friday at ODS-Petrodata, Houston. That lowered the utilization rate more than 2 full points to 69.2% in those waters, they said.
In European waters, the number of contracted rigs increased by 1 to 88 out of an available fleet of 100 for an utilization rate of 88%. Worldwide, there was a net decline of 4 rigs under contract to 531, including an uncontracted newbuild jack up that increased the total available fleet of mobile offshore rigs to 659, with utilization down slightly to 80.6%.
US land outlook
With US land drilling activity already up 32% from year-ago levels, both the demand for rigs and the resulting day rates are expected to continue to increase through the rest of 2003 and into 2004, analysts at Jefferies & Co. Inc.'s Houston office reported earlier this week.
"We believe that operators will grow more confident about natural gas fundamentals during 2003, as natural gas prices remain above $5/Mcf and producers struggle to refill low storage levels due to declining US and Canadian production, firm industrial demand, and higher exports to Mexico," Jefferies analyst S. Magnus Fyhr reported Wednesday.
"In fact, Anadarko (Petroleum Corp., Houston), the most active domestic onshore E&P company, has already announced a $200 million increase in its drilling budget for the remainder of 2003," he said. "Going forward, we believe that increased budget allocations will further stimulate North American onshore drilling activity as well as improve demand in the Gulf of Mexico jack up market, which has had a small but steady increase in demand over the last few weeks."
Both large and small independent producers are likely to "reinvest higher-than-expected cash flow back into the drillbit," said Fyhr. "Although some large independents like Anadarko, Burlington (Resources Inc., Houston), EOG (Resources Inc., Houston), and Devon (Energy Corp., Oklahoma City) have stepped up their onshore drilling activity over the last 2 months, a large portion of the increase in land drilling activity has come from smaller independents and privately owned E&P companies. In fact, the market share for the 15 largest onshore rig (clients) has declined from approximately 35% in February to 32% currently as smaller operators have recently been more aggressive in contracting rigs."
With the recent surge in drilling activity, Fyhr said, several contractors have raised day rates for land rigs by "$300-$500, as well as pass through increases in labor costs." However, with "more available land rig capacity compared to the previous two cycles," he said, "we expect day rates to increase modestly for the remainder of the year, with more significant increases in 2004 as rig availability is expected to decline."
Jefferies' recently revised projection of onshore rig activity "may prove to be conservative," he said, at an average of 915 rigs working in the third quarter of this year, 980 in the fourth quarter, 1,016 in 2004.
Gulf operations
With more rigs expected to leave the Gulf of Mexico in coming weeks, day rates for jack ups in those waters are expected to increase in the last half of this year, sad Fyhr. "After bottoming at 80 active rigs in mid-February, the Gulf of Mexico jack up rig count has increased over the last several weeks and currently totals 97 rigs," he said Wednesday. That included 3 jack ups scheduled to leave for jobs in Mexico in July.
"Several contractors are reporting an increase in bid activity and are also receiving 60-90-day commitments and developing a small backlog for some rigs," he said. "The domestic jack up market is also beginning to benefit from an increase in day rates, as some rigs have recently been contracted at day rates approximately $2,000-$4,000 higher than previous contracts."
Fyhr said, "Day rates could potentially accelerate above our current forecast as rig availability could become very limited" by the fourth quarter of this year.
Recent deep gas discoveries in relatively shallow waters on the gulf's outer continental shelf are fueling demand for jack up rigs. "Newfield (Exploration Co., Houston), El Paso (Production Co., Houston), and Unocal (Corp.) have several deep gas prospects to drill this year," Fyhr said. "We believe that the recent deep gas trend could also help improve domestic jack up utilization, as deep gas wells typically take up to 90-120 days (to drill), compared with 30 days for a typical Gulf of Mexico well."
He said, "We believe that the recent Central Gulf of Mexico lease sale provides further evidence of increasing interest in the US gulf and deep gas, as the sale drew the highest number of bids for a Central Gulf sale since 1998, with two-thirds of those blocks in shallow water" (OGJ Online, March 19, 2003). The deep gas play in the gulf is estimated to hold 10.5 tcf of recoverable natural gas 15,000 ft below the ocean bed.