By OGJ editors
HOUSTON, July 18 -- US drilling activity rebounded from a 5-week low, jumping by 24 rotary rigs to 1,089 working units this week, up from 859 during the same period a year ago, said officials Friday at Baker Hughes Inc.
Last week, the US rig count had fallen by 12 units in the second largest 1-week loss for this year (OGJ Online, July 11, 2003).
All of this week's gain was in land operations, up 24 rigs to 966 units at work. Operations in US inland waters increased by 1 to 17 rigs. But the number of offshore rigs actually in the process of drilling this week dipped by 1 to 102 in the Gulf of Mexico and 106 in US waters as a whole.
Canada's rig count escalated by 30 to 412, a strong increase from the 266 rotary rigs working during the same period last year.
In the US, the number of rigs drilling for natural gas increased by 24 to 932. Oil drilling was up by 1 rig to 154, while 3 rigs were unclassified. Directional drilling increased by 5 to 272 rigs; horizontal drilling was down 3 to 93.
Texas led this week's rebound, up 14 rotary rigs with 474 working. Oklahoma's rig count increased by 8 to 131, while Wyoming was up 1 to 62. Louisiana and Alaska were unchanged at 157 and 8 active rigs, respectively. California's rig count dipped by 2 to 21, and New Mexico was down 1 unit to 62 rigs still drilling.
Offshore rigs removed
Utilization rates among mobile offshore rigs in the Gulf of Mexico and worldwide got a boost this week with Houston-based Transocean Inc's announcement that it is removing five jack up rigs, a "mid-water" semisubmersible, and a self-erecting tender rig from drilling service.
Transocean's action drops the total number of rigs available for work in the Gulf of Mexico to 175 from 180 previously, said officials Friday at ODS-Petrodata, Houston. There are now 126 rigs under contract in US gulf waters, down 2 from the previous week, but with the fleet reduction, the utilization rate jumped almost a full point to 72%.
Since ODS-Petrodata does not include tenders in its weekly rig count, its worldwide count of available mobile offshore rigs was reduced by 6 to 659, with 520 under contract—four fewer than the previous week—for 79.6% utilization overall. In European waters, the number of mobile offshore rigs under contracts dipped by 1 to 83 of the 100 units available for work in those waters, an utilization rate of 83%.
Transocean's semisubmersible and five jack up rigs "had been idle for some time; most were cold stacked and not marketed, so they weren't impacting the rig market much anyway," said Thomas E. Marsh, US publisher, ODS-Petrodata.
Jack up market outlook
However, James K. Wicklund, an analyst in the Houston office of Banc of America Securities LLC, said Friday, "The Gulf of Mexico jack up market (the only market displaying meaningful day rate increases), is on track for a supply-led recovery, while we expect the deepwater market to remain over-supplied through 2004."
In addition to the five jack ups that Transocean is eliminating from the gulf fleet, Wicklund said there is a strong possibility "that at least six jack ups will leave the Gulf of Mexico to complete term contracts with Pemex (Petroleos Mexicanos, Mexico's national oil company). So by yearend 2003, there will be no more than 115 jack ups in the gulf, with the potential for less."
Wicklund said, "This implies jack up demand only needs to increase by 1-6 rigs to reach the 80-85% inflection point where day rates start to increase exponentially. With 92 jack ups contracted, demand stands well below the 3-year average of 114."
Although the demand for jack up rigs in the gulf this year may not reach previous peaks, he said, "There is potential for demand to increase from its current levels as three independents, albeit smaller independents, have already increased their Gulf of Mexico budgets."
In a report issued Friday, Wicklund reported indications that the cash flow among exploration and production companies in the US "could be up as much as 90% this year over 2002." However, he said, "The industry does not have the people, time, or capacity to spend the cash flows" generated by higher prices this year for oil and natural gas.
"Money not spent this year will be spent eventually," said Wicklund. "It is thought that only about 60% of cash flow will be spent on exploration and development this year, compared (with) 87% for the past few years. That allows for a great deal of balance sheet repair while still pushing the rig count up."
He said, "We estimate that drilling activity will be up another 15% or so next year, fueled by spending a higher percentage of cash flow, more in line with the last few years. This does not include any leftover funds from this year's high cash flow levels."
As a result, said Wicklund, "The independents are very likely to more aggressively acquire properties, have the acquisitions funded by Wall Street or their banks, and use reserved cash to optimize production from those properties through increased drilling."
"Despite price uncertainty and the general agreement that high prices will not hold over the life of most wells, drilling in the US continues to be attractive. Currently, a producer or consumer can lock in12 months of oil or natural gas at $28.81(/bbl) or $5.19(/Mcf)," said James L. Williams, president of WTRG Economics and publisher of Energy Economist Newsletter.
Williams said he expects drilling activity to grow "for at least 2 months. Gas drilling activity should reach 1,000 (rigs) in 2 months. Oil drilling is below the level justified by current prices but is suffering competition from gas drilling."
In announcing its decision Thursday, Transocean said it would take a charge of $12 million after taxes against second quarter earnings on the retirement of its seven units.
Transocean officials also announced Thursday that company subsidiaries were awarded drilling contracts by the Oil & Natural Gas Corp. (ONGC), the state oil company of India, for three jack up rigs—the Trident XII, Ron Tappmeyer, and Randolph Yost.
The contracts are for 3 years each with an expected October commencement, following the completion of each unit's current drilling program and mobilization to India.
The Trident currently is working off Vietnam; the Ron Tappmeyer is employed off Indonesia; and the Robert Yost is drilling off Equatorial Guinea.
