US drilling continues 9-week decline

By OGJ editors
HOUSTON, Jan. 16 -- US drilling activity continued a 9-week decline with 1,568 rotary rigs working, down 21 from the previous week to the lowest count since the week ended Mar. 17, 2006, when the tally was on the rise at 1,546.

A year ago at this time, there were 1,732 rotary rigs drilling in the US and its waters, said Baker Hughes Inc.

Most of this week's decline was in land operations, down 20 units with 1,488 still working. Offshore drilling declined by 1 rig to 64 in the Gulf of Mexico and 69 total in US waters. Inland water activity was unchanged with 11 rigs working.

Although some industry veterans have weathered previous downturns, most oil and gas company managements "have never witnessed this situation before in their careers," said analysts at Pritchard Capital Partners LLC, New Orleans. "The price signal is telling drillers not to drill, not to complete current wells, and not to even think about exploration. The backlog of wells drilled and not yet tied-in will likely drive production growth through April and potentially the third quarter. An estimated [US gas] demand decline of 1 bcfd in 2008 seems to be the consensus thinking, although that number may be understated based on industrial demand trends."

At Pritchard Capital Partners' annual Energize Conference on Jan. 13-15 in San Francisco, officials of Union Drilling Inc., Ft. Worth, Tex., were projecting a 750-1,000 rig decline in 2009. Moreover, they said the "wrong rigs" are being laid down "in terms of provoking a larger supply response," with smaller rigs being idled rather than the larger ones. "The utilization impact is going to be uglier than the cash flow impact as a result," analysts reported.

At that same conference, Pioneer Drilling Co., San Antonio, forecast a drop of 1,000 rigs "with a $2,000-7,000 fall-off in day rates as newbuilds roll off previous term contracts in the first quarter."

In the Houston office of Raymond James & Associates Inc., analysts said, "While it seems like the rest of the world has cancelled or postponed plans to tender for additional jack ups, Petroleos Mexicanos continues to build out its jack up fleet. The latest tender calls for three, 300 ft independent cantilever jack ups, including two incremental tenders." Moreover, they said, "In addition to the usual bids from jack ups in the Gulf of Mexico, rigs from West Africa, Australia, and the Middle East also bid on these tenders. All of these rigs reprice in the first quarter, and their bids speak to the lack of international jack up demand."

Of the US rigs still working, 1,235 are drilling for natural gas, 4 fewer than the previous week, and 324 are drilling for oil, down by 17. There were 9 rigs unclassified. Directional drilling increased by 8 rigs to 323, while horizontal drilling decreased by 4 to 548.

Texas sustained the biggest loss among major producing states, down 14 rigs to 699 drilling. Louisiana's rig count declined by 4 to 179, while Wyoming was down 3 to 58. North Dakota and New Mexico lost 2 rigs each with respective counts of 66 and 58. Oklahoma, Arkansas, and Alaska were each down 1 rig to 154, 48, and 12, respectively. California was unchanged at 35 rigs. Colorado's rig count increased by 4 to 95.

Canada's rig count had a seasonal jump of 78 rigs to 438 drilling. That's down from 560 active rigs in the same period a year ago.