REED ANNUAL SURVEY SHOWS RISE IN UTILIZATION OF U.S. ROTARY RIGS

The number of active rotary rigs in the U.S. is continuing a 4 year upward trend, while the number of available rigs continues to slide.

A survey by Reed Tool Co., Houston, found 1,677 rigs working out of 2,320 available, a utilization rate 15 percentage points higher than last year. In 1989, Reed counted 1,444 rigs working out of 2,542 available, a 57% utilization rate.

U.S. rig utilization increased for the fourth straight year since the rate plummeted to 26% in 1986, when only 1,052 of 3,993 rigs were active. The number of available rigs counted yearly by Reed has decreased since 1982, when the U.S. fleet peaked at 5,644.

Reed considers a rig available if it has worked during the past 3 years and can be returned to service with an investment of $50,000 or less. It considers a rig active if it works during Reed's 15 day census or during the 30 days preceding the survey period last summer.

Reed Pres. Roy Caldwell said increasing drilling will trim attrition of the rig fleet during the coming year to half that of the past 2 years.

Reed's census found that the number of drilling contractors in the U.S. declined to 500 in 1990 from 558 in 1989. Of the 191 contractors who have left the drilling business since 1987, 181 owned fewer than 10 rigs.

Of the 1990 count, 221 contractors owned two to five rigs and 170 owned only one rig. The average contractor owns a little less than five rigs.

Ninety percent of 273 companies surveyed by Reed cited low contract rates as a major impediment facing drilling contractors, 70% cited crew shortages, 55% drill pipe shortages, and 32% lack of financing.

Yet companies reported an average of 18,000 ft of drill pipe/rig, and 2.7 crews/rig, a 10% personnel shortfall. Thus, Reed concluded that low contract rates and cash flows are the greatest threats to maintaining an adequate U.S. drilling industry.

FLEET CHANGES

Reed found that 382 rigs had left the U.S. fleet since last year and 160 had been added for a net decline of 222 rigs.

Among the losses were 82 rigs that had been stacked for 3 years or longer, 105 rigs costing $50,000 or more to return to work, 166 cannibalized, 23 moved out of the U.S., and six destroyed or vandalized.

On the plus side, 116 rigs that had fallen from earlier Reed counts were put back in service, 40 rigs were built from available components, and four were moved into the U.S.

"There were no newly manufactured rigs reported in this year's fleet," Caldwell said. "Some contractors apparently found it cheaper to refurbish older rigs than pay transportation costs to move in newer rigs from other areas."

Availability of U.S. offshore rigs reached its lowest level since 1976, when 240 rigs were available.

According to Reed's 1990 census, the U.S. offshore rig fleet decreased since 1989 by 34 to 259 rigs, while activity climbed by three rigs to 205. Rig use increased to 79%, a 10 percentage point rise since last year.

But Reed said low natural gas prices had caused Gulf of Mexico drilling to slow, causing many contractors to consider moving rigs to other areas. The recent moratorium on offshore drilling except for Alaska and the Gulf of Mexico likely will cause 15 rigs available off California to be moved, sold, or scrapped during the next year.

In terms of regional highlights, Reed described the surge of horizontal drilling in the Cretaceous Austin chalk trend of South Texas as reminiscent of the nationwide drilling frenzy of 1981. In that year, Reed found 4,703 of 4,803 U.S. rigs working, for a 98% utilization rate.

Reed said coalbed methane drilling had caused the rig fleet to increase in northern Alabama to 47 from 26. Utilization rate there is 91%.

THE FUTURE

Reed predicted the U.S. fleet will total 2,245 rigs in 1991, a decline of 75. It said the number of active rigs will increase to 1,835, for a utilization rate of 82%. After 1991 fleet attrition will halt.

Reed's 1990 census period measured activity during June 9-July 23, before Iraq invaded Kuwait.

Caldwell said quick, peaceful resolution of the crisis in the Middle East would leave Reed's forecast of U.S. drilling activity unchanged. A stalemate lasting well into next year would increase U.S. activity by 10-15%. Swift resolution by warfare would decrease U.S. activity below Reed's projections.

Caldwell said increased utilization should lead to higher contract rates, eventually enabling contractors to expand their businesses. He said it is essential that the U.S. drilling industry rebuild its infrastructure if the decline of U.S. oil production is to be arrested.

However, Caldwell said current contract rates hamper even basic recovery, such as placing rigs back into service after 3 years of being stacked. In recent years the trend has been to sell idle rigs to maintain cash flow.

Results of Reed's 1990 census, its 38th, cannot be compared directly with other counts of rig activity.

For its weekly count, Baker Hughes Inc. considers a rig active only if it is drilling when surveyed. Smith Tool Co. counts as active any rig engaged in any step of operation between start of rigging up and end of rigging down.