REED TALLY SHOWS SLIDE IN U.S. RIG UTILIZATION

U.S. rotary rig utilization this year reversed a 4 year upward trend, while rig availability continued a 9 year decline. In its latest rig census, conducted last summer, Reed Tool Co., Houston, found 1,485 rigs working out of 2,251 available to drill. Last year at the same time, Reed counted 1,677 rigs working and 2,320 available. Rig utilization rates reported by the survey had been growing since 1986 when Reed counted 1,052 rigs working out of 3,993 available, 26.35% of the U.S. fleet. That

Oct. 7, 1991

7 min read

U.S. rotary rig utilization this year reversed a 4 year upward trend, while rig availability continued a 9 year decline.

In its latest rig census, conducted last summer, Reed Tool Co., Houston, found 1,485 rigs working out of 2,251 available to drill. Last year at the same time, Reed counted 1,677 rigs working and 2,320 available.

Rig utilization rates reported by the survey had been growing since 1986 when Reed counted 1,052 rigs working out of 3,993 available, 26.35% of the U.S. fleet. That was the lowest utilization rate since Reed began the annual census in 1955.

The U.S. rig fleet has been dwindling since 1982 when Reed counted 5,644 rigs.

Reed's 1991 survey found the U.S. marine fleet decreased by 14 since 1990 to 245 units. Offshore rig utilization rate was 72%, down from 79% in the 1990 census. In 1982, the U.S. marine fleet consisted of 505 units.

Reed in 1990 predicted U.S. rig utilization in its 1991 survey would reach 82%, with a net loss of 75 rigs. This year's tally shows a net loss of 69 rigs, but utilization is only 66%, reversing a 4 year upward trend.

In 1990, Reed recorded a net decrease of 222 rigs available and a utilization rate of 72%.

In announcing results of its 1991 survey, Reed cited four trends that likely will rule out chances of increased drilling activity through 1992:

Accelerating rig attrition.
Persistently low gas prices.
Flight of major U.S. companies to international markets.
Fears of surplus oil supplies as Kuwait and Iraq resume production.

"The 1991 Reed rig census describes an industry still facing crisis," Reed Pres. Roy Caldwell said last week in Houston. "Another difficult year is shaping up for contractors in 1992. Drilling in the U.S. may set a record I ow.

CENSUS DETAILS

Reed said the slowdown in net rig attrition recorded by its 1991 census occurred because not many rigs are left in the U.S. to delete.

The largest category for the year to year change in rigs lost took place in among rigs cannibalized or auctioned for parts. Contractors responding to Reed's 1991 survey reported only 69 rigs cannibalized or auctioned, compared with 166 in 1990's survey.

"Contractors who have been surviving by cannibalizing rigs might be running out of raw materials," Caldwell speculated.

Also, fewer rigs in 1991 were reported stacked for 3 years or more-50, compared with 82 in 1990. The number of rigs able to work with $50,000 of repairs also decreased to 74 from 105 in 1990.

The only lost rig category increasing since 1990s census was among rigs moved out of the U.S.-38 in 1991, compared with 23 in 1990.

Of the 183 U.S. fleet additions Reed counted this year, 138 were rigs brought back into service after having been dropped by earlier surveys.

Also, 43 rigs were assembled from components, and two moved back into the U.S.

Reed said some contractors added rigs to U.S. markets because they found it cheaper to reactivate an old rig in the vicinity of a well than to pay costs of transporting an available rig a long distance.

More than 90% of available rigs counted by Reed's 1991 survey drilled at least one well since the 1990 survey.

Among offshore units, floating rigs and bottom supported units led activity in U.S. waters, with utilization rates of 88% and 83%, respectively. However, Reed said, those rates were artificially high because of a rush to drill expiring leases in coastal waters of Louisiana.

"Many of those rigs are now idle, and most contractors would choose to be in any offshore market other than the Gulf of Mexico," Caldwell said.

Reed reported a 52% utilization rate for 48 platform rigs off the U.S. and a 63% rate for 51 inland barges.

LOWERED EXPECTATIONS

Caldwell said the company's 1990 forecast was wrong because it misread indicators of rig activity.

For one thing, Reed expected war in the Persian Gulf to stimulate U.S. drilling.

"Instead," Caldwell said, "the war might have reduced U.S. drilling activity because Saudi Arabia, Venezuela, and other countries have replaced Iraqi and Kuwaiti oil. Just when we thought we saw a light at the end of the tunnel it appears we found a train."

Drilling in 1990, spurred by horizontal well activity and efforts to qualify coal seam wells for federal tax credits then scheduled to expire at yearend, led to relatively high rig use rates. Slightly higher drilling activity suggested rig supply and demand were nearing an economically acceptable balance, Reed said.

However, during 1991, U.S. drilling budgets have been cot drastically because of reduced interest in horizontal prospects, the lowest U.S. gas wellhead prices in 12 years, and conclusions by major companies that a better return on investment can be found outside the U.S., Reed said.

"These factors, combined with softened energy demand resulting from the worldwide recession, further slowed U.S. drilling," Caldwell said.

Reed predicted 1992 active rig$ at 1,400. The count could be greater if:

Soviet political instability further deteriorates the economy of he U.S.S.R., the Soviet oil industry collapses, and would oil prices increase.
Drilling increases at yearend 1992 as operators try to qualify as many unconventional gas wells as possible for federal tax credits scheduled to expire by Jan. 1, 1993.

Caldwell said a larger than normal share of U.S. wells will be drilled by small independent operators, many of whom rely on external financing and cash flow from operations to fund drilling.

That is bad news for already strained U.S. drilling contractors, Caldwell said, because declining U.S. oil production and low gas prices have squeezed most of the cash and speculative financing out of the drilling industry.

DECIMATED INDUSTRY

Since 1982, when Reed counted 5,644 rigs available, almost 3,400 rotary rigs have left the U.S. fleet. The company said most have been stacked, cannibalized, or sold for parts at auctions.

Since the U.S. fleet began declining in 1982, an average 380 rigs/year have been lost. More than 1,400 rigs-about 75/year-left the U.S. fleet during 1955-73 in the first downward trend tracked by Reed's survey.

Since 1987, the number of U.S. rig owners has decreased almost one-third, to 467 in Reed's 1991 survey from 691.

Reed said a poor revenue year in 1991 likely will force more U.S. drilling contractors out of business. The company also said 1992 will be marked by a higher rate of attrition paced by increased cannibalization and accelerating movement of U.S. rigs to non-U.S. markets.

The company predicted the number of available U.S. rotary rigs will decrease by 151 to 2,100 units.

"For drilling contractors who survive, rig utilization in late 1992 again should rise above 70%, and the outlook for 1993 could be even better," Caldwell said.

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 investment of $50,000 or less. Reed considers a rig active if it is working during the 15 days of the census or has worked in the 30 days before the survey period last summer.

Results of Reed's survey cannot be compared with other measures of drilling activity.

For its weekly count, Baker Hughes Inc. considers a rig active only if it is drilling when surveyed. Smith Tool Co. considers a rig active in any step of rigging up or rigging down.