REED'S U.S. RIG TALLY SLIDES TO POSTWAR LOW
The fleet declined by 112 rigs, off 6% from the 1994 count. The previous modern day low was 1,767 rigs in 1973. Then came a surge of construction in the late 1970s and early 1980s, when more than 3,800 rigs were added.
After peaking at a record 5,644 in 1982, the available rig count has been in continuing decline.
Reed's 1995 census reported 1,232 active rigs, up 11 from last year. Reed considers a rig active if it is drilling during the 15 days of the census or has worked in the 30 days before the survey period, June 3-July 17 this year.
Thus, based on this snapshot of summer activity, drilling was fairly stable year to year.
The Reed forecast for the 1996 fleet is a decrease of 50 rigs, resulting in a count of 1,679 available units. Because drilling activity is expected to remain steady, rig utilization will rise to 73%.
UTILIZATION RATE
Fleet utilization rate rose to 71% in 1995, up 5 percentage points from last year.Reed Pres. Roy Caldwell said, "We believe a sustained utilization rate above 80% is necessary for business conditions to improve significantly for drilling contractors."
Caldwell said despite this year's increase in utilization rate, low energy prices and reduced cash flow prevented broad improvement for drilling contractors.
"The offshore fleet, the one real bright spot, has experienced a considerable increase in utilization since the last census, driven mostly by gas drilling," Caldwell said.
Utilization of the marine fleet climbed to 83%, up from 75% in 1994, mainly because of increased activity in the Gulf of Mexico and net addition of only one rig. "If this balance between supply and demand of the marine fleet continues to improve, offshore rig rates will increase further, not only in the U.S. but worldwide," Caldwell said.
Floating rigs had the highest level of utilization, almost 95%. Inland barge and jack up utilization rates were 89% and 88%, respectively.
Last year was notable as the first time the census reported more rigs drilling for gas than for oil, based on the last well drilled by each active rig in the census. The percentage of gas- only rigs reached 60% last year. This year,the trend has reversed somewhat, although rigs drilling for gas still dominate with 57%.
"Longer term, it still appears that we are likely to move toward being the 'gas and oil industry' because of U.S. reserves of natural gas vs. oil and the environmentally friendly image of natural gas," Caldwell said.
Rig utilization rate during the history of the Reed census has fluctuated widely, soaring to a high of 98% in 1981 and plunging to a low of 26% in 1986. The average has been 73%.
FLEET DECLINING
The net change in the rig fleet reflects removal of rigs from service as well as addition of new, rebuilt, or previously stacked rigs.
In 1995, 195 rigs were removed from the fleet: 71 were cannibalized or sold for parts, 62 required a capital outlay greater than $50,000, 30 were moved out of the U.S., 29 were stacked for more than 3 years, and three were scrapped. In 1994, only 148 rigs were removed from service.
Only 51 rigs were cannibalized in 1994.
Of the 83 new rigs in the fleet, 38 were reactivated, 35 were assembled from components, and 10 were moved into the U.S. There were no rigs built in 1995 for the U.S. fleet. In 1994, 136 rigs were added to the fleet.
The census has found a continuing decline in the number of owners of available rigs during the past 9 years. This year, 45 fewer owners reported available rigs, leaving the count of rig owners in the U.S. at 316, less than half the number in the drilling business in 1987.
The large majority of owners leaving the industry had small operations, with most owning a single rig. Thus, as industry consolidation continues, large contractors control a greater share of the fleet.
This year, only 5% of contractors own a single rig, while 28% of the owners have more than 21 rigs. Only 20% of the contractors had more than 21 rigs just 2 years ago.
"This trend should continue as smaller contractors find it increasingly difficult to survive in today's extremely competitive business conditions," Caldwell said.
Small contractors are especially concerned with financial issues such as insurance and borrowing costs.
"Clearly," Caldwell said, "longer term survival for all contractors will require economic conditions in the drilling industry that permit recapitalization of the rig fleet and a fair return to investors."
Reed's census shows increased day work drilling since 1992, reaching 50% in 1995. Growing strength in horizontal and deviated drilling may be contributing to this trend.
Correspondingly, rigs working under footage contracts dropped 1 percentage point to 36%. Rigs working under turnkey contracts also dropped by I percentage point, to 14%.
SURVEY HIGHLIGHTS
In the sixth survey of contractors conducted in conjunction with the rig census, respondents ranked low contract rates as their most serious problem.
Contractors with offshore rigs said rates rose on average 4% this year. Land rates dropped about 1%, however. In 1992, land rig rates dropped about 6%. Despite marginal increases during the past 3 years, rig rates are still not back to where they were in 1991, Caldwell said.
Other contractor concerns include crew availability, drill pipe replacement, insurance costs, aging equipment, and financing.
On a positive note, drilling efficiency has increased during the past 2 years. The most significant contributors to increased efficiency, in order of importance, were drill bit technology, experienced crews, downhole motors, improved maintenance, safety programs, and drilling fluids.
Many contractors are optimistic about business conditions next year. On average, a 5% increase in business is anticipated. Most who forecast increased activity in 1996 believe increases in gas prices will drive the market.
About 43% of smaller contractors have no plans for change, whereas 63% of larger contractors expect to expand their rig fleet. Also, 55% of large contractors expect to move international next year, and one-third of them expect to participate in a merger of some kind.
The average price forecasts for 1996 by contractors was $18.22/bbl for oil and $1.58/MMBTU for gas.
More than half of the rig contractors said the U.S. Department of Energy should be abolished.
Most contractors also believe the government should establish a floor price for imported oil and allow natural gas marketing cooperatives to help stabilize gas supply and prices. However, nearly half of the contractors said the federal government should stay out of oil and gas markets.
"Most contractors believe actions taken by the federal government would do more harm than good," Caldwell said.
SURVEY METHOD
Reed presented its census results at the annual meeting of the International Association of Drilling Contractors in Houston in October.
For its survey, Reed considers a rig available if it has worked during the past 3 years and can be returned to service with a capital outlay of $50,000 or less.
Reed's count of active rigs is higher than weekly counts because it is a cumulative tally of all rigs active during a 45 day period.
By contrast, Baker Hughes Inc.'s weekly count considers a rig active only if it is drilling when surveyed. Smith International Inc. considers a rig active if it is in any phase of rigging up or rigging down.
Copyright 1995 Oil & Gas Journal. All Rights Reserved.