IADC: US rig fleet utilization rebounding, according to ReedHycalog rig census

Nina Rach
Drilling Editor

HOUSTON, Sept. 26 -- US rig fleet utilization is likely to rise slightly in 2004, reflecting slow, steady growth in drilling activity.
John Deane, president of ReedHycalog, a unit of Houston-based Grant Prideco Inc., offered that view as he summarized results of the 2003 US rig census Friday at the annual meeting of the International Association of Drilling Contractors (IADC) in Houston.

The 50th ReedHycalog rig census is based on rig activity during May 10-June 23.
This year's census compares with the census taken in 2001; the census was not produced in 2002, in a cost-cutting measure by Schlumberger Ltd., then parent of ReedHycalog. Grant Prideco bought ReedHycalog from Schlumberger in December 2002 and reinstated the annual census this year.

Market factors
Deane said he believes that commodity prices normally drive drilling activity, but after significant increases in both crude oil and natural gas prices since 2001, he noted that rig activity "isn't what we expected" and suggested four underlying causes:
-- The "fear factor," or apprehension of a market downturn.
-- Political and supply uncertainties in Venezuela, Nigeria, and Iraq.
-- Increased attention to the balance sheet in the wake of corporate financial scandals.
-- A tendency toward reinvestment in current production rather than new drilling.

Fleet changes
The US rig fleet remains strong and has maintained healthy utilization rates, according to the census results.
Based on survey responses, the fleet size will not change significantly in 2004, but current expectations are for "slow and steady" activity growth, with a predicted utilization rate in 2004 of 81%.

US rig utilization in the 2003 census is 78%, better than the 50-year mean of 73%, but significantly below the 93% utilization determined in the 2001 census. Utilization peaked in 1981 at 98%, and the historical low came in 1986 at 26%. There were 1,334 rigs meeting the "active" definition in the 2003 census vs. 1,593 in 2001.
Rig availability increased to 1,719 in 2003 from a low of 1,636 rigs available when the market bottomed out in 2000. The net change in fleet size from 2001 is a loss of 3 rigs.

The size of the US fleet has been in decline since the peak of 5,644 rigs in 1981, as significant numbers of the aging fleet have been cannibalized or auctioned for parts (59 rigs in 2003, 23 in 2001), required large capital expenditure (57 in 2003, 36 in 2001), moved out of the US (45 rigs in 2003, 6 in 2001), remained stacked longer than 3 years (7 in 2003, 28 in 2001), or were destroyed (4 in 2003, 3 in 2001).
The fleet was augmented by rigs assembled from components (74 in 2003, 105 in 2001), newly manufactured (48 in 2003, 9 in 2001), brought back into service (37 in 2003, 56 in 2001), and moved into the US (10 in 2003, 12 in 2001).

Rates, other factors
Rig rates for 2003 are up 6% over 2001, but they are offset by increases in maintenance spending (17%), labor costs (4%), and insurance.
Top concerns of contractors in 2003 are 1) rig rates, 2) crew availability, and 3) insurance costs.
Industry consolidation continues; larger contractors (owners of more than 20 rigs) have acquired 63% of the available fleet. The number of rig owners declined by 12 as a result of consolidation and company closures.
In summary, Deane said, "certainly the health of the fleet is better than it's been in years."
Census data from 1980-2003 can be downloaded from the Grant Prideco web site, at: http://www.grantprideco.com/pressrelease_docs/Census%20history%202003.xls.

Contact Nina Rach at [email protected]