Schlumberger says US rigs increase, utilization hits 20-year high

By the OGJ Online Staff

HOUSTON, Sept. 27 -- After 2 years of declines, the number of US rigs grew this year as increased drilling activity pushed utilization to a 20-year high, said Schlumberger Ltd. officials Wednesday at the meeting of the International Association of Drilling Contractors in New Orleans.

The annual census by Schlumberger's Reed-Hycalog division during May 5-June 18 revealed a net gain of 86 units for a total 1,722 rigs available for work in the US. That's up 5% from 1,636 rigs last year, which marked a record low for the 49 years of that census.

"The decline in the number of rigs that began 19 years ago has leveled off and begun an upturn," said John Deane, vice-president of drilling technologies with the Schlumberger Oilfield Services segment in Houston.

Reed-Hycalog officials counted 1,593 active rigs during the 45-day survey period, up 31% from last year and the largest tally since 1990. The utilization rate for the US fleet, including both land and marine rigs, jumped to 93% from 74% in 2000 -- "well above the historical census average of 73%," Deane said.

The Reed-Hycalog census makes a cumulative count of all rigs that are active at any point within a 45-day period. It therefore is always higher than the weekly tally by Baker Hughes Inc. of the number of rigs working in a particular week.

The Baker Hughes rig count for June 15 -- the last full week of the Reed-Hycalog survey period -- showed 1,266 rotary rigs drilling in the US and its waters, up from 871 during the same period in 2000. The latest Baker Hughes count dropped to 1,186 rotary rigs working in the US during the week ended Sept. 21.

Like others in the industry, Schlumberger officials credited recent high commodity prices, particularly for US natural gas, for triggering the jump in drilling activity earlier this year.

However, Deane said, "Activity will probably slow by 5% or so since those incredible gas prices have dissipated, causing utilization to drop to about 85%. Although this seems like a significant decline from this year's (census) level, it still shows remarkable strength compared to most of the past 2 decades."

He said, "Recent economic events may add additional uncertainty over the next year, but the overall picture remains strong."

Deane predicted next year's Reed-Hycalog census will reflect modest growth of about 3%.

Most of the drilling rigs added to the fleet this year were assembled from component parts. "Despite the age of the rig fleet, as market conditions improved, rig owners were able to repair or assemble needed rigs fairly quickly," said Deane.

Meanwhile, he said, "Mergers and acquisitions in the drilling contracting industry have not let up, and have continued for more than a decade."

As a result, the total number of US drilling contractors decreased by 17 to 191 this year. "There were almost 700 rig owners back in 1987, and we're down to less than 200 now," Deane said.

Large contractors, those with 20 or more rigs, control a greater proportion of the US drilling market with 62% of all US-based rigs.

"This rig census data and contractor survey reflect a very optimistic outlook with expectations that commodity prices won't dip too low," Deane said. "As a matter of fact, 63% of rig owners anticipated expanding their fleets over the next 5 years."

Lack of experienced drilling crews is still the primary concern among drilling contractors as it was during last year's Reed-Hycalog census and survey.

"Although drilling contractors have enjoyed improved market conditions lately, the instability of the industry has left an acute shortage of qualified labor," said Deane. "With the need to put rigs back to work, not even improved rig rates can bring back the lost generation of experienced help."

Although every drilling contractor responding to survey reported they were earning higher pay rates for their rigs this year, the group still listed day rates as their second major problem.