More US rigs idled as offshore drilling markets soften
US drilling activity continued to fall, down by 20 units to 955 rotary rigs still working this week, compared with 1,842 drilling during the same period a year ago, said Baker Hughes Inc.
HOUSTON, Apr. 24 -- US drilling activity continued to fall, down by 20 units to 955 rotary rigs still working this week, compared with 1,842 drilling during the same period a year ago, said Baker Hughes Inc.
Land operations had the biggest loss in the US, down 23 rigs to 899 active this week. Inland waters activity declined by 1 rig to 5 working. Offshore drilling increased, however, up 4 to 51 rigs in federal waters, including an increase of 3 rigs to 49 in the Gulf of Mexico.
Of the rigs still working, 742 were drilling for natural gas, 18 fewer than the previous week. Those drilling for oil were down 3 to 202. There were 11 rigs unclassified. Horizontal and directional drilling declined by 14 rigs each to 385 and 172, respectively.
Among the major producing states, Texas was down 6 rigs to 378. North Dakota lost 5 to 38. Louisiana's rig count declined by 4 to 132. Wyoming was down 3 to 34, and Colorado lost 2 to 50. Oklahoma, New Mexico, and California lost 1 rig each 90, 30, and 18 respectively. Arkansas was unchanged at 45. Alaska increased by 1 rig to 8 working.
In other states of interest, Pennsylvania was down 1 rig to 30. Utah lost 1 to 16. West Virginia was unchanged with 21 rotary rigs working.
Canada's weekly rig count dropped by 9 to 65, down from 88 working in the same period a year ago.
Offshore drilling outlook
Analysts at Friedman, Billings, Ramsey & Co. Inc. (FBR) in Arlington, Va., said, "Demand for jack ups is minimal with many being stacked, heading for the shipyard, or taking accommodation contracts instead." They said, "We still expect costs to raise throughout the year for most of these offshore drillers as new rigs commence operations or exit the shipyard."
FBR analysts said, "The floater market is weakening, with newer rigs competing down market with older rigs. Furthermore, the frequency of sublets from operators is exacerbating the downward pressure. In some cases, companies are competing with their own rigs, as operators seek to sublet from current contracts. Some areas of strength remain. Brazil continues to search for drilling capacity in order to satisfy its large drilling program."
They said, "The Middle East and Southeast Asia are seeing the greatest amount of weakness, with many jack ups stacking or expected to stack after current contracts. In addition, operators have been seeking rate relief in exchange for longer terms, which has helped to increase contract coverage for some offshore drillers. The North Sea remains somewhat insulated, as is typical of the high regulation region. Mexico is the sole bright spot in jack up demand, and several incremental tenders are expected in May and June. Estimates for required jack ups range from 4 to 10 additional units, and we expect this to be highly competitive. The Gulf of Mexico is weak as well but is the only region to have lower day rates pique the interest of some smaller operators."
Meanwhile, drilling contractors Noble Corp., Diamond Offshore Drilling Inc., and Ensco International Inc. reported first-quarter earnings above Wall Street consensus estimates largely because of lower-than-expected operating costs. Following conference calls Apr. 23 from each of the drilling contractors to financial analysts, officials at Pritchard Capital Partners LLC, New Orleans, noted that operating costs "are moderating and in some cases declining from 2008 and that the market is going to be bad as expected, but very manageable and not as bad as some may have anticipated." They said, "The tone on all of the calls was somewhat positive, although all were very well aware that rates were declining and rigs would be stacked throughout the year."
James D. Crandell at Barclays Capital Inc. said, "Demand for jack ups both internationally and in the Gulf of Mexico continues to soften, and day rates and utilization are likely to remain weak through 2010." He said in another report, "New rig orders are expected to remain relatively weak through 2009 and much of 2010 (although Brazil should be a bright spot)."
Pritchard Capital analysts agreed, saying, "The jack up market will remain soft into 2010, and rigs will experience significant rate declines as well as substantial idle time. With supply exceeding demand, we had expected that the market would exit 2009 with 45 to 75 jack ups idle. We now forecast that this figure is likely to be closer to the higher-end of this range, as prospects for additional jack up tenders are dwindling with commodity prices remaining relatively weak. The imbalance now appears to be approximately 78 rigs. We expect the Middle East, Southeast Asia and Gulf of Mexico will be the weakest regions in 2009, but are forecasting day rate declines of 30% to 56% in 2009 and additional declines of [as much as] 26% in 2010 across all regions."
They added, "While we expect the ultradeepwater floater market to hold up better than the jack up and midwater markets, we believe leading edge day rates will decline to approximately $495,000 in 2010 for drillships and $425,000 for semisubmersibles. India, West Africa, and Brazil will likely continue to demand ultradeepwater rigs, and with the current market demand exceeding supply through 2010, rates will likely hold firm near our forecasts."
Contact Sam Fletcher at firstname.lastname@example.org.