U.S., Canada Taking Lead In Probable Drilling Decline

G. Alan Petzet
Exploration Editor

Robert J. Beck
Associate Managing Editor-Economics

• How First Half U.S., Canada Drilling Compare [14,977 bytes]
• Oil & Gas Journal Forcast for 1998 [19,084 bytes]

Volatile oil prices that plummeted in second quarter 1998 should lead to a decline in drilling this year in the U.S. and Canada.

Drilling activity has been more stable in the rest of the world than in North America. Non-North American rig counts for January through April 1998, the latest available at this writing, still showed even to positive comparisons with the first four months of 1997 in most regions.

A number of U.S. operators announced cuts in capital and exploration expenditures in response to the sagging oil prices, and all had sufficient time to underspend early year budgets if prices stayed weak too long.

The U.S. outlook

OGJ looks for operators to drill 11,074 wells in second half 1998, down from an estimated 13,676 wells in the first half.

This is based total wellhead revenues to operators of $71.3 billion, and that figure is derived from the expectation crude oil prices will average $13/bbl and natural gas prices will average $2.05/Mcf at the wellhead on the year. The $71.3 billion would be a 15.7% drop from 1997 revenues.

Here are hilights of OGJ's midyear drilling forecast for 1998:

• Operators will drill 24,750 wells in the U.S., down from an estimated 28,636 wells drilled in 1997.
• All operators will drill 3,248 exploratory wells of all types, with slightly fewer than half drilled during the second half.
• The Baker Hughes count of active rotary rigs will average 860/week, down from 944/week in 1997.
• Operators will drill 10,804 wells in Canada during 1998.

U.S. economics

Spending to drill and complete wells in the U.S. this year is forecast to total $12.9 billion, down 12.5% from 1997 outlays.

At 24,750 completions, the year's drilling would be less than 1,000 wells below the average number of wells drilled in the U.S. each year during 1990-98.

OGJ figures that average U.S. footage per well will grow to 5,596 ft this year from 5,282 ft in 1997, partly due to the continued proliferation of horizontal and multilateral wells. The same calculations suggest that the average cost per foot will fall to $93.46/ft this year from $97.88/ft last year, even though the cost per well will average $523,000/well, up from $517,000.

Drilling slowdown

Figures compiled by Baker Hughes Inc. indicate that the U.S. rig count has been slow to adjust to the drop in oil prices. Baker Hughes counted an average of 916 rigs/week turning to the right for January through June 1998, compared with only 893 rigs/week in the first half of 1997.

By mid-June, however, the count was 11-12% lower than in corresponding weeks of 1997.

Offshore U.S. drilling, confined almost entirely to the Gulf of Mexico, averaged 134 rigs/week in the first half of 1998 compared with 118 rigs/week in January through June 1997.

Oklahoma, Kansas, and North Louisiana-areas with large portions of shallow oil production-showed negative comparisons in the first half.

U.S. gas drilling ran ahead of 1997 while oil drilling was down sharply in year to year first half comparisons. Of the total number of rigs drilling for oil and gas, 32% were on oil wells as of mid-June 1998, down from 35.7% in the last week of 1997.

Canadian dropoff

First half drilling in Canada averaged 317 rigs/week compared with 324 rigs/week in the same period of 1997, Baker Hughes reported.

However, Canadian rig figures in mid-June showed a whopping 24% fewer rigs running this year as in the same year in 1997.

Rest of world

The world rig count including North America ran nearly 13% higher in January 1998 than in January 1997, but it has declined in every month through April 1998.

Baker Hughes showed 1,819 rigs running worldwide in April 1998, down from 2,293 in January. Almost the entire drop is attributable to the U.S. and Canada.

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