First 2-week gain in rig count in 8 months

US drilling activity increased a second consecutive week for the first time in more than 8 months, up by 18 rotary rigs this week to 917 working, said officials at Baker Hughes Inc.

By OGJ editors
HOUSTON, June 26
-- US drilling activity increased a second consecutive week for the first time in more than 8 months, up by 18 rotary rigs this week to 917 working, said officials at Baker Hughes Inc.

That’s on top of a 23-rig gain in the week ended June 19. The last time Baker Hughes reported a back-to-back gain in the US rig count over a 2-week period was in 2008 on Oct. 30, when the count increased 7 to 1,971, and on Nov. 7, when the count climbed to 1,992. During this same period near the end of June a year ago, there were 1,913 rotary rigs working.

As usual, land operations accounted for most of the latest gain, up by 20 rigs to 867 drilling. Inland water activity increased by 1 to 7 rigs working. Offshore drilling was down by 3 rigs to 43 total in US waters, including a drop of 2 to 43 in the Gulf of Mexico.

Of the rigs now working, 687 were drilling for natural gas, down 5 from the previous week. The number drilling for oil increased by 23 to 219, and 11 remained unclassified. Directional drilling fell by 3 rigs to 171, while horizontal drilling was down 1 to 390.

Among the major producing states, Texas’ rig count was up 8 to 338 during this week. Oklahoma and Alaska increased by 2 rigs each to 79 and 6, respectively. New Mexico and North Dakota were up 1 rig each to respective counts of 38 and 37. Arkansas was unchanged with 44 rigs drilling. Colorado and Wyoming dropped 1 rig each to 43 and 30, respectively. Louisiana was down 2 to 135; California was down 2 to 22.

In other states of interest, Pennsylvania increased by 3 rigs to 43 drilling. Utah was up 1 to 16. However, West Virginia was unchanged at 20 rigs.

Jack up outlook
Analysts at Pritchard Capital Partners LLC, New Orleans, reported drilling contractor Rowan Cos. Inc. is recommencing construction of its 400-ft independent-leg cantilever (IC) jack up rig, the Joe Douglas, in Vicksburg, Miss.

As of the first quarter of this year, Rowan had spent $53 million on construction of that rig and estimated another $180 million would be required to complete it.

“But now forecast costs have declined to $150 million,” said Pritchard Capital Partners. If canceled, Rowan would have incurred a charge of $85 million, with another $26 million related to closing the Vickburg yard.

Pritchard Capital analysts said, “We feel this is an excellent decision and furthers our investment thesis that demand for high spec jack ups will remain strong, even amidst the emergence of 20-plus spec build jack ups entering the market through 2010.”

They expect Rowan to announce in the third quarter it will proceed with construction of the 350-ft Rowan EXL No. 4 in Brownsville, Tex. “The company has spent $29 million to date and expects remaining costs to be $130 million, although the cost may have declined similar to previous estimates for the Joe Douglas (charge of $60 million if canceled),” analysts said. “We have heard anecdotal evidence from various operations personnel from drilling operators, drilling contractors, and shipyards that there is pent up demand for premium jack up contracts, and we should see a wave of contracts later this year.”

Pritchard Capital analysts reported, “Market sources indicate that Diamond Offshore Drilling Inc. and Hercules Offshore Inc. are contemplating following Pride International Inc. by offering special incentives to operators for contracting their rigs during hurricane season, although both stressed concessions would be made on a case-by-case basis.

“Pride earlier announced it would charge a zero day-rate during any storm-related evacuation periods on any of its Gulf of Mexico jack ups. Diamond Offshore currently has 3 available gulf jack ups (3 more cold stacked), Hercules 11 (9 others cold stacked), and Pride has 5 (8 more cold stacked). Last week Ensco International Inc., a contractor willing to undercut the market in pricing, cold stacked 2 jack ups, indicative of poor market demand for 250 and 300 ft IC jack ups, and recently Hercules contracted the Hercules 173…at cash costs, which is the lowest rate since 2004 for a low-spec jack up. We expect gulf demand to remain poor…,” Pritchard Captial analysts said.

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