Larger, newer rig fleet enables 7% increase in world drilling

Oct. 22, 2007
Oil prices remain strong, surpassing $80/bbl this year, keeping operators motivated and contract drillers busy despite depressed natural gas prices.

Oil prices remain strong, surpassing $80/bbl this year, keeping operators motivated and contract drillers busy despite depressed natural gas prices. Worldwide use of drilling rigs continued to increase 7% over levels 1 year ago, particularly for land drilling in the US, Latin America, and Asia-Pacific, and offshore Middle East.

Higher oil prices and sweeping nationalism, however, have prompted some countries to seize industry operations or force contract renegotiations, halting some planned drilling. Higher prices also drive diversification, research, and development of alternative energy resources, as well as renewed efforts at conservation and efficiency.

Analysts have been watching and waiting as hundreds of newbuild land rigs, dozens of jack ups, and a handful of semisubmersibles have entered the market. There is lower utilization of land rigs than marine rigs, and continuing tightness in the offshore rig market, particularly for floaters.

Speculators continue to push newbuild programs for mobile offshore drilling units (MODUs), with at least 150 units currently under construction (OGJ, Sept. 24, 2007, p. 41).

Two of the largest offshore drilling contractors, GlobalSantaFe Corp. and Transocean Inc., announced a merger in July. The combined company will own 147 rigs, including 72 floaters and 68 jackups, and will control 27% of the world’s 551 jack ups, semisubs, and drillships.

Worldwide activity

Worldwide drilling set a record in February 2007, with 3,352 rigs operating. Then the rig count plummeted 15% to 2,835 rigs in April. Drilling picked up almost immediately and returned to levels equal to a year ago (Fig. 1).

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Why did the worldwide rig count quickly plunge by 517 rigs in the first half of the year? Gas prices were depressed, reducing gas drilling, and spring breakup in Canada was extended.

Baker Hughes Inc.’s international rig count (excluding North America, Iran, and Sudan) reached a record high of 1,018 rigs in July 2007, up 10.5% from 921 rigs a year earlier (Fig. 2).

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The overall rise in rig use derives mainly from increases in US, Latin America, Middle East, and Asia-Pacific regions, with rig use in Africa and Europe relatively flat over the past year (Fig. 3).

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The greatest increase in rig numbers during this calendar year has been in Latin America, where 348 rigs were operating in August, up from 335 rigs in January (4% increase in 8 months). Argentina continues to drill with the largest fleet of land rigs in Latin America, although this year it dropped to 73 rigs in July from a high of 87 in May, according to Baker Hughes. Mexico was running 68 land rigs in August, Venezuela was drilling with 62, and Colombia with 41. Brazil used 18 land rigs in August, Ecuador 11, Peru 5, Bolivia 3, and Chile 2.

Brazil leads in offshore drilling, with 22 marine rigs, predominantly floaters, operating in August, followed by Mexico 19 (predominantly jack ups), Venezuela 16 (predominantly drilling barges), Trinidad 4, and Peru 2.

Europe led with the largest percent increase in rig use, with 82 rigs operating in August, up from 74 rigs in January (11% increase). Most land rigs were in Germany and Yugoslavia (5 each); Italy (3); Hungary, Poland, and Romania (2 each); and in other countries. The UK led offshore drilling in August, with 28 rigs operating, followed by Norway (20), Denmark and The Netherlands (3 each), and others.

A consortium led by Providence Resources PLC is drilling five production wells off Ireland this year with the Petrolia semisub, spending about $135 million on the busiest drilling program off Ireland in decades.

Drilling in Asia-Pacific has increased moderately to 241 rigs in August from 231 in January (4% increase). India led land drilling, with 57 rigs; followed by Indonesia with 39; Australia with 14; Myanmar with 7; and New Zealand and Papua New Guinea (3 each). India also hosted the largest number of offshore rigs (23), closely followed by Indonesia (21), China (19), Malaysia (17), Australia (12), Vietnam (8), Thailand (5), and others.

India’s Oil & Natural Gas Corp. (ONGC) drilled 88 exploratory wells and 178 development wells in fiscal 2006-07 and plans to spend $30 billion on operations over the next 5 years (OGJ, Sept. 24, 2007, p. 27).

China National Petroleum Corp. announced it will drill 700 horizontal wells this year, up from 600 planned because of increased production over vertical wells. CNPC has increased horizontal drilling annually since 2000 and drilled 522 horizontal wells in 2006 (OGJ, Sept. 24, 2007, p. 9).

Belgium’s Petrobel NV was drilling on the Sinai coast with Rig 92 from Sino-Tharwa Co., a joint venture between China’s Sinopec and Egypt’s Tharwa Co. (Fig. 4; photo from Weatherford International Ltd.).
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There were 270 rigs drilling in the Middle East in August, up 3% from 263 in January, according to Baker Hughes. Saudi Arabia used the greatest number of land rigs (69), followed by Oman (49), Egypt (34), Syria (20), Pakistan (19), Yemen (15), Kuwait (13), Abu Dhabi (10), and others (Fig. 4).

Only four countries were drilling offshore: Egypt (13 rigs), Qatar (10), Saudi Arabia (9), and Abu Dhabi (4).

Drilling in Africa dropped to 68 rigs in August from 69 in January. Algeria had 29 land rigs working, Libya 13, Nigeria 4, Gabon 3, Congo and Tunisia (2 each), and others. There were five rigs working off Nigeria, four off Angola, and single rigs off South Africa, Tunisia, and other countries (Fig. 5).

A crew drills on Diamond Offshore Drilling’s Ocean Victory semisub for BP in the Gulf of Mexico (Fig. 5; photo from BP America).
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The North American rig count reached an historic high of 2,371 rigs in February 2007, up 5.4% from 2,248 rigs/year earlier (Fig. 2). The seasonally cyclic trend is driven by Canadian operations, but drilling is down in Canada, and the increase in rig numbers is driven by US operations.

SCORE

GlobalSantaFe Corp.’s summary of current offshore rig economics (SCORE) remained about 136 worldwide in August 2007, down 0.5% from June (OGJ, Sept. 24, 2007, p. 41). The SCORE compares the profitability of current mobile offshore drilling rig day rates to the profitability of day rates at the 1980-81 peak of the offshore drilling cycle (when SCORE = 100).

In August, the semisub SCORE decreased to 152.3, down slightly from 152.6 June, but up about 9% from a year earlier and up 266% from 5 years ago. The jack up SCORE decreased to 125, down from 127 in June, but up about 10% from a year earlier and up 170% from 5 years ago.

Regionally, the SCORE for West Africa (149, up 3.3% from a year earlier) and North Sea (147; up 2.8% from last year) remain highest. The SCOREs for Gulf of Mexico and Southeast Asia remain nearly equal at about 120, about equal to June. Southeast Asia, however, has shown a 37.5% improvement in the previous year, while the SCORE for the Gulf of Mexico has improved only 7.7% in the past 12 months. Worldwide SCORE for all regions and rig types increased about 10% in the past year.

US drilling

US drilling is on the increase, driven by activity in the US Rocky Mountains, the Piceance basin, and various shale gas plays. Rigs are migrating into the US from Canada, and newbuilds continue to expand the fleet.

The top 50 operators, based on number of well starts, drilled 12,991 wells in the first 9 months this year, all deeper than 2,500 ft, totaling nearly 103 million ft (Table 1). This represented only 50.7% of all wells drilled through Sept. 25.

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The number of directional wells was down substantially from 2006, when eight operators drilled more than 100 directional wells each (OGJ, Sept. 18, 2007, p. 37). In 2007, Williams Production RMT Co. drilled 155 directional wells and EnCana Oil & Gas (USA) Inc. drilled 96.

Thirteen of the top 50 operators drilled wells with an average footage of 10,000 ft or greater: XTO Energy Inc., EnCana, Pioneer Natural Resources USA Inc., BP America Production Co., Samson Lone Star LLC, Anadarko E&P Co. LP, SandRidge Energy Inc., Questar Exploration & Production Co., Endeavor Energy Resources LP, Comstock Oil & Gas LP, Forest Oil Corp., Henry Petroleum LP, and Cimarex Energy Co.

Patterson-UTI Drilling Co. LP and Nabors are the largest drilling contractors. Nabors’s fleet is broken out among several subsidiaries: Nabors Drilling USA LP, Nabors Well Services Co., and Nabors Offshore Corp., each ranked separately by RigDesign. Patterson-UTI ran an average of 260 rigs January-August 2007, and the three Nabors companies cumulatively ran an average of 264 rigs (Table 2).

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Other top drillers include Helmerich & Payne IDC (average 136 active rigs), Grey Wolf Drilling Co. LP (112 rigs), Unit Drilling Co. (72 rigs), Pioneer Drilling Co. (62 rigs), Nomac Drilling Corp. (53 rigs), and Ensign US Drilling Inc. (50 rigs).

During the past 3 years, Grey Wolf has upgraded and refurbished 17 rigs, deployed 8 new rigs, and sold or retired 15 older rigs. In September, Tom Richards, the company’s chairman, president, and chief executive officer, said Grey Wolf has recently added two like-new rigs and ordered two additional new rigs.

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The North American land rig market has softened, but the rig counts are still higher than a year ago. For the week ending Sept. 21, 2007, the Baker Hughes rig count listed 1,684 land rigs drilling in the US (Table 3). There were also 60 rigs drilling off Alabama, California, Louisiana, and Texas, in addition to 25 rigs drilling in Louisiana’s inland waters. Baker Hughes rig counts only include rigs that are “turning to the right,” and so the count is conservative. BHI does not include all rigs under contract, in transit, testing, rigging up, or rigging down.

Newbuilds, offshore

About 140 new MODUs are under currently under construction worldwide (Table 4), including 72 jack ups, 43 semisubs, 19 drillships, 3 tenders, and at least 3 drilling barges. These 140 new rigs, to be delivered 2007-11, will increase the existing fleet of 782 MODUs by 18%, to 922 rigs (OGJ, Sept. 24, 2007, p. 41).

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Contracts for additional newbuilds are announced almost weekly.

Simmons & Co. International analyst Ian Macpherson said that despite the additions, day rates in all but shallow-water Gulf of Mexico will remain steady and even “bleed higher” in the near future.1

The coming year will be decisive, he said, when more than half of the newbuilds are delivered.

M&A, IPO

The merger of Norway’s Statoil ASA and Norsk Hydro ASA’s petroleum businesses was finalized Oct. 1. Some service companies wonder how this will affect competitive bidding for work on the Norwegian shelf.

According to the Norwegian Petroleum Directorate, there were 44 producing fields in the North Sea and 8 producing fields in the Norwegian Sea at yearend 2006. In 2007, seven new fields began producing, including the Snohvit field in the Norwegian sector of the Barents Sea.2

The NPD said operators would drill 30 exploration wells in 2007, and invest 82 billion kroner ($15 billion).2

General Electric Oil & Gas announced in January 2007 that it was buying drilling equipment manufacturer Vetco Gray from 3i Group for $1.9 billion (OGJ, Mar. 9, 2007, p. 72).

Australian drilling conglomerate Boart Longyear raised $1.9 billion in an initial public share offering in first-quarter 2007. Boart provides worldwide drilling services to BHP and Rio Tinto Group (produces frac proppants), among others. The company’s Lang exploratory division, based in Salt Lake City, builds and operates rigs in the US, including the LM700 triple reverse-circulation rig working in the Columbia River basin for EnCana and Shell (OGJ, June 11, 2007, p. 53).

Looking ahead

Onshore, there will probably be an increased use of horizontal drilling to optimize shale and coal gas production. Due to the increasing demand for stimulation technology, more effort will probably be invested in research and development, particularly for hydraulic fracturing.

Offshore, there’s a need to develop light well intervention (LWI) techniques and dynamically positioned vessels for subsea workovers-especially on the Norwegian continental shelf. Deepwater drilling vessels are too expensive to provide frequent well maintenance and optimize production. Earlier this year, Expro International announced it was working with operators to develop a rigless subsea intervention system.

BJ Tubular Services has been running a rigless intervention system in the Gulf of Mexico to decommission platforms since 2003. It operates like a modular miniderrick, with a mast 76 ft tall.

Service companies will probably bring forward similar systems in the near future.

References

  1. Macpherson, I., “Spotlight on offshore rig fundamentals and initiation of the Norwegian Drillers,” Simmons Energy Monthly report, Aug. 20, 2007, 79 pp.
  2. Norwegian Petroleum Directorate, “Facts 2007-The Norwegian Petroleum Sector,” www.npd.no.