The US rig count for last year grew 7.0%, on target with our projected 6.9% year-to-year average increase, a modest rate compared with the steep 19.4% growth in 2006. The rig count for 2007 grew the most in Texas, with a 98-rig jump to 844. This year, we are predicting a more modest 4.9% increase, to an average of 1,854 rigs by the end of 2008. The gas/oil-directed drilling split remained essentially flat, averaging 82.9% gas-directed for 2007.

According to the latest ReedHycalog Rig Census, newly manufactured rigs, at 349 units, were the largest addition to the US fleet. The total number of US active rigs increased 9%, while utilization dropped significantly to 85% from 96% in 2006. Rig attrition declined slightly from 2006; 95 units were removed from the US fleet compared with 119 units in 2006. Overall, the ratio of active to available rigs is 85%, down from 96% in 2006. Every US region reported utilization losses in 2007. Rig availability categorized by its depth capacity showed a decline in utilization rates for rigs of all depth ranges. However, the most dramatic decrease occurred for rigs with depth capacities of 3,000 to 5,999 ft, a decline attributable to the slowdown in coalbed methane drilling. Rigs with those capacities had utilization rates decrease to 59% from 90% in 2006. The decline in rig utilization can be attributed to continued additions to the available fleet and softening of the gas market. With stagnant rig activity and World Oil’s 1854-rig-count forecast, utilization rates will decrease in 2008.

According to The Land Rig Newsletter (LRNL), day rates for a typical 1,000-hp rig in the South Central US region declined to an average of $16,250, a decrease of 21% from the 2006 average of $20,625. LNRL has also reported that the day-rate curve has followed two trends over the 2005-2006 period. The first one involves a shrinking regional differential; i.e., rates have been approaching uniformity among various regions. The second trend indicates a greater variance in day rates within individual markets. Another contributing factor to the declining day rates could be the increased number of operator-owned rigs for 2007. The ReedHycalog Rig Census reports that operators own about 11% of the US fleet, increasing from 5% in 2006. This increasing trend for operator-owned rigs arguably affects competition and, consequently, day rates.

Average number of US rotary rigs in operation1 Click Table To Enlarge.

Day rate profiles also changed significantly in 2007. LRNL reported that daywork contracts increased to 88% in the last quarter of 2007 in comparison to the 84% share in 2006. In contrast, footage contracts’ contribution decreased to 9% of the market from 12% of the 2006 market. The market contribution from turnkey contracts remained the same in 2007. In the Permian Basin and Appalachians, daywork contracts rose dramatically and accounted for 58% of working rigs, a sharp increase from 20% in 2006. 

These numbers, from Baker Hughes, represent only those rigs that are significant consumers of oilfield services and supplies. It does not include very small truck-mounted rigs or rigs that can operate without a permit. However, non-rotary rigs such as coiled tubing and workover rigs drilling new wells may be included. To be counted, a rig must be on location and be “actively” drilling. A rig is active from the moment the well is spudded until it reaches TD. Rigs that are in transit, rigging up, performing workovers, completions or production testing, are not counted.