DRILLING MARKET FOCUS: Drilling outlook stabilizes as world economy rebounds

Nov. 23, 2009
The fundamental outlook for the global drilling market gained strength during October, driven by improving crude oil prices amid signs of an economic recovery throughout much of the world.

The fundamental outlook for the global drilling market gained strength during October, driven by improving crude oil prices amid signs of an economic recovery throughout much of the world.

Schlumberger Ltd. Chief Executive Officer Andrew Gould said he was optimistic that oil producers might boost spending next year if they gain confidence that oil prices will stay around $80/bbl.

His comments came after the December 2009 contract for benchmark US light, sweet crude settled at $81.19/bbl on the New York Mercantile Exchange on Oct. 22, marking the first time in more than a year oil had settled higher than $80/bbl.

During an Oct. 23 conference call on Schlumberger's third-quarter financial results, Gould said he believes oil companies' 2010 budgets currently assume less than $70-75/bbl next year.

"The worst, provided the economy continues to show signs of recovery, is behind us," he said of the drilling downturn. Schlumberger's outlook for the rest of 2009 assumes continued modest recovery in North American gas drilling.

Most of the major oil companies have yet to discuss their 2010 spending plans. ConocoPhillips in early October said its 2010 capital expenditures will be $11 billion, down from $12.5 billion in 2009.

Rising utilization rates

Pritchard Capital Partners LLC suggests world jack up utilization "has likely troughed" and now appears to be stabilizing. Brian Uhlmer, Pritchard Capital director of research, said most markets reached bottom in the second or third quarter.

Pride International Inc.'s ultradeepwater drillship Pride Angola is drilling in 4,600 ft of water on Block 17/Rosa area off Angola for Total SA. The dynamically positioned drillship is equipped for drilling in 6,000 ft of water. Photo from Pride International.

Based upon statistics from ODS-Petrodata Inc., Pritchard Capital estimated the jack up utilization for West Africa jumped to 82% in October after dipping to 55% in July. Utilization in the Gulf of Mexico and Mexico was 66% in July and gradually rebounded to 72% in October.

"We continue to believe the jack up market will be bifurcated, and drillers with high-spec, newer equipment will be first to have their rigs return to work and earn pricing power during the upcycle," Uhlmer said.

A Petrobras subsidiary will use the Petrobras 10000 ultradeepwater drillship for work off Angola. Transocean Ltd. has a 10-year drilling contract as part of an agreement with the P&M Drilling International BV joint venture to acquire the drillship under a 20-year capital lease contract. Photo from Transocean.

The supply of available independent-leg cantilever (IC) jack ups is lower than many believe, Pritchard Capital said. As of Oct. 19, analysts calculated 33 IC jack ups available in the world market.

Uhlmer believes most cold-stacked equipment never will go back to work. As of Oct. 19, he calculated 17 cold-stacked IC jack ups total belonging to Diamond Offshore Drilling Inc., Ensco International Inc., Hercules Offshore Inc., and Transocean Ltd.

"Over 68% of the global jack up fleet is over 20 years old, with just 17% of all jack ups under 10 years old," Uhlmer said. "As operators elect to drill to deeper depths, requiring higher hookload capacity and more complex mud pump and blowout preventer systems, we believe many drillers will elect to cold stack their older assets rather than refurbish the equipment to make it more competitive, further balancing the marketed supply."

Utilization roller coaster

Parker Drilling Co. Chairman, President, and Chief Executive Officer Robert L. Parker outlined his company's strategy for surviving the drilling downturn during a September 22 panel discussion at the IHS Herold energy conference in Greenwich, Conn.

Worldwide, Parker Drilling operates 29 land rigs and a fleet of barge rigs in the Gulf of Mexico. Within the last year, the contractor experienced an abrupt drop in demand for barge rigs.

"Out of 15 barge rigs, we operated 11 in early December 2008," Parker said, but that number dwindled at one point to only 2 barge rigs working. "Today, we have 6 barge rigs working. The whole industry is at 9 compared with 40 a year ago."

Meanwhile, Parker Drilling's Operations and Maintenance division experienced growing demand for its customized drilling packages in which the contractor operates customer-owned rigs.

The O&M division has a 2-year O&M contract with BP Exploration (Alaska) concerning a land-based rig designed to drill extended-reach wells in Liberty field. This involves the drilling from an existing island of an ultraextended reach well 10,000 ft deep with an 8-mile lateral.

Parker Drilling designed and constructed the rig, which arrived at its Alaska North Slope drilling site in July, Parker said.

The O&M division also has a front-end engineering design study and contracts with the consortium operating the Sakhalin-1 development off the east coast of Russia's Sakhalin Island.

The FEED study involves an offshore platform for Arkutun-Dagi oil field in 33-197 ft of water about 15 miles off Sakhalin Island (see map, OGJ, June 17, 2002, p. 42). Parker Drilling's O&M division designed and constructed Sakhalin-1's Yastreb extended-reach drilling rig, which reached 37,016 ft laterally in the Z-11 well (OGJ, May 7, 2007, p. 9).

In addition, Parker Drilling project management division is supplying technical services for 18 rigs owned by Kuwait Drilling Co.

"This is a growing part of our company. We actually operate other companies' rigs for them," Parker said. "O&M is capital light because we don't have money invested in these rigs. It's a way to grow our net income without investments. It certainly helps us in times like today."

Deepwater markets

Contractors report a brisk business off Africa for both drillships and semisubmersibles.

The newbuild ultradeepwater drillship Petrobras 10000 has commenced operations off Angola under a 10-year drilling contract. Transocean Ltd. of Zug, Switzerland, has an agreement with the P&M Drilling International BV joint venture of Petroleo Brasileiro SA (Petrobras) and Mitsui to acquire the rig under a 20-year capital lease contract.

The Petrobras 10,000 features dual-activity drilling technology that allows for cost-saving parallel drilling operations. Built at a South Korean shipyard, the drillship has the capability of drilling in more that 10,000 ft of water.

Petrobras aggressively plans to increase its rig capacity by chartering up to 28 ultradeepwater drilling units. The company has said it would like drillships, and possibly semis, built in Brazil for delivery during 2013-18.

Pride International Inc. said its deepwater semi, Pride South Pacific, has a 1-year contract by a subsidiary of Noble Energy Inc. for operations off West Africa. The contract is expected to commence during first-quarter 2010 in direct continuation of the rig's current contract commitment off West Africa.

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