Midyear Forecast U.S., Worldwide Drilling Activity To Increase This Year

Robert J. Beck
Associate Managing Editor-Economics
G. Alan PetzetExploration Editor

Drilling activity is increasing this year in the U.S. and worldwide.

OGJ projects an average rig count in the U.S. of 760 for 1996, compared with 723 last year.

Drilling activity in the U.S. hit a record low in 1992 with an average of only 717 active rotary rigs. The rig count moved up to an average of 757 in 1993 and 775 in 1994.

Through the first half of this year the rig count was up 5.8% from the same period a year earlier, averaging 732 active rigs.

The international rig count, excluding the U.S. and Canada, was 793 in May, compared with 740 in the same month last year.

The average for the first five months this year was 784 active rigs compared to 750 in 1995.

Softening possible

Second half drilling in the U.S. might soften compared with the first half pace, but more wells are expected to be drilled in 1996 than in 1995.

Canada, meanwhile, is experiencing another busy year.

Oil and gas price weakness could undercut activity later this year in both countries, although major oil companies late in the first half were anticipating a substantially more active second half.

Baker Hughes Inc. figures show an average of 6.2% more rigs per week active in the U.S. during first half 1996 than in first half 1995.

Here are other highlights of OGJ's midyear U.S. drilling forecast for 1996:

Operators will drill 22,200 wells, up from an estimated 21,241 wells drilled in 1995.
All operators will drill about 3,306 wildcats and other exploratory wells during the year, including an estimated 1,747 wells drilled during the first half.
A surveyed group of major operators will drill 2,506 wells during the year, including 247 exploratory wells.

Drilling in western Canada will total 10,830 wells for the year, including 5,302 OGJ estimates were drilled during the first half.

U.S. economics

OGJ estimates that drilling and completion spending will total $11.37 billion in the U.S. this year, up 6.9% from spending in 1995.

Wellhead revenue generated by sales of oil and gas production is expected to total $74 billion, nearly 12% higher than in 1995.

This spending level indicates that operators will drill 22,200 wells, or about 29 wells/rig. This would work out to average costs of $512,000/well and $88/ft.

Average footage drilled, which because of extensive horizontal and directional drilling no longer corresponds with average depth, is estimated at 5,815 ft/well.

U.S. activity

OGJ expects drilling to be slower in the second half of 1996 than it was in the first.

The slowdown might not occur until the fourth quarter. In fact, some large independents were still increasing their 1996 capital and exploration spending plans near the end of the second quarter.

The number of drilling permits issued through May, the latest figures available at this writing, is up 5-35% on the year in most areas. Notable exceptions are Michigan, Upper Texas Gulf Coast Dist. 3, West Texas Dists. 7C and 8A, and Wyoming.

State tax exemptions and other incentives still buoy drilling in several states.

Oil discoveries the past two years in Mississippian Lodgepole mounds have led to issuance of well over 300 permits to drill in North Dakota in the first half, more than five times as many as in first half 1995. The state's first half average rig count more than doubled. However, through the first half operators have not continued 1995's discovery successes into 1996 despite acquisition of large volumes of 3D seismic data.

Majors' outlook

Surveyed major oil companies indicated plans to drill nearly half again as many wells in the second half as in January-June.

They also looked set to hike exploratory action, planning 247 exploratory tests of all types on the year compared with 91 reported to have been drilled in the first half. Exploratory tests include new field wildcats, deeper and shallower pool wildcats, and step-outs.

The majors planned 153 wells in Oklahoma on the year, including only 50 they said they drilled in the first half. Louisiana Gulf of Mexico activity was estimated at 354 wells on the year, including only 154 drilled in the first half. Underspending could prevent drilling of some of those wells.

South Louisiana, on the other hand, was in the responding majors' plans for 63 wells on the year, 45 of which they said they drilled in the first half.

Drilling in Canada

Western Canada drilling is in the midst of another robust year, with trade groups predicting completion of well over 11,000 wells. This would put 1996 among the province's best years.

Price weakness could be a factor, however, especially if gas markets in eastern Canada and the U.S. become oversaturated due to high levels of drilling the past 3-5 years.

OGJ figures 10,830 wells will be drilled in western Canada on the year, 8,772 of them in Alberta.

Gas plays are still buoying activity in Northeast British Columbia, a slight second half pickup is predicted for Saskatchewan, and an incentive program is drawing new investment, although a relatively small number of wells, to Manitoba.