What's happening in drilling
Opinions on the upcoming drilling marketAttendees at the 1999 IADC Annual Meeting in Houston, September 29-October 1, heard several speakers describe the state of the drilling industry and what to expect in the future. What was perceived as a consensus is difficult to imagine, as each listener would have to form an individual opinion from what was presented. This listener only heard a few of the presentations. From them, the message appeared to have three main parts: 1) the oil industry can expect ups and downs; 2) world hydrocarbon demand will continue to grow, and the present supply is depleting, so more wells have to be drilled; 3) operators probably will not start doing this until next year. Meanwhile, there are too many competitive rigs and too many contractors, thus the industry needs more consolidation. Matthew Simmons said world demand of 114 MMbpd (oil equivalent) will grow to 135 MM boepd by 2005, and to 150 MM boepd by 2010. Thus, the world will need 40 MM boepd more for that net growth, plus 120 MM boepd to match a 10%/year production decline. Rig attrition to 2010 will require another 1,000 rigs, he says. But to meet supply could require yet another 1,000 rigs — 50% of either scenario is a "challenging task," Simmons notes. Len Paton with Chase Manhattan Bank said prospects for world drilling industry consolidation are not promising. He noted that every other segment of the service industry now has only 3 to 5 major players, but the contract drilling industry has many more. The contract drillers, however, are tied up in social issues, like who will be the CEO, who will control the board, etc. He thinks further consolidation won’t happen quickly, and may rely on attrition, as there are few new entrants. One area that will continue to draw more drilling is U.S. gas. George Littell, with Groppe, Long & Littell, noted that all U.S. gas areas are declining, after peaking at about 20 Tcf /year, total, around 1997. Presently, Canadian imports are supplying about 38% of U.S. needs and will continue to grow to match declining U.S. output before 2005. Clearly, U.S. gas operators must accelerate drilling. But the question is, can they keep the growing industrial market as supply / demand balance forces gas prices to $3-4 levels, making it less competitive with coal for the critical boiler markets. Offshore rig market. An important analysis in the Offshore International Newsletter of September 20, concludes that "despite the oil price rise, rig owners may have to wait a while." Published oil prices above $20/bbl arrested declining rig demand, which had taken the world fleet down to 406 contracted units, from 465 in January — the September count was up to 420. Pacing the rebound was the U.S. Gulf of Mexico, which increased 14 rigs to 131 active, at over 70% utilization, the highest count since November 1998. This represents a net 23-rig increase since the108 bottom in April. This is still below the 85% utilization point, which signals "substantial dayrate increases." OIN predicts a gradual demand increase in the next 6–12 months, with 85% utilization still a "distant goal." Over half the region’s jackups have contracts ending in the next 90 days. During this time, dayrates and contract terms could substantially improve. But operators may seek longer-term contracts to "lock in" lower dayrates; this could change the supply situation. North Sea rig demand stabilized somewhat, but "the worst may not yet be over" for the region. Twenty two rigs do not have work, utilization was down to 76% in September, and another 13 rigs will come off contract in 90 days. Utilization in January was over 92%. Recent contract signings for North Sea semis saw the bottom end for dayrates fall to $28,500, down from $35,000 last quarter. Latin America has been "remarkably stable," with utilization holding at over 80%. This excludes Lake Maracaibo, in which only 17 of the region’s 48 drilling barges are actively drilling. Asia Australia has been steady with around 47 units working, with 60% utilization; however some 14 rigs are coming off contract. West Africa "continues to languish," with 23 active rigs contributing to a falling 55% utilization; and at least seven rigs are coming off contracts. OIN’s conclusion is, despite oil price improvement, worldwide rig demand is likely to "tread water, if not sink a bit." Ten newbuilds will enter the fleet, to bring additional competition. But drilling budgets are rising, and as utilization increases, dayrates will "eventually" follow. Drilling-related sales / acquisitions. Parker Drilling Co. announced that it has closed the transaction with Unit Corp. for the sale of its 13 Lower-48 land rigs, for which Parker got $40 million in cash and 1-million shares of Unit stock. Parker says it can now focus on growing its U.S. offshore, international land / offshore and rental tool business. Parker now has 83 marketable rigs, of which 34 are U.S. based. Weatherford International will acquire, likely by year-end, Williams Tool Co., for a reported $64 million in stock. Williams supplies technology for underbalanced drilling — principally rotating BOP/control heads. And National Oilwell has merged with Hitech ASA to create what they call the "industry’s leading integrated drilling solutions company." National will issue 8-million shares and some $20 million for Hitec’s outstanding shares. It says Hitec’s control, instrumentation and pipe handling systems enhance National’s product offering. RamRigs work. Aker Maritime reports that experiences from the two first RamRig drilling derricks are described as very promising. Despite a short running-in period with the equipment, work is performed as quickly as with traditional drilling derricks, but efficiency is much greater. Maritime Hydraulics’ experts who developed and
delivered the derricks have been in close contact with the drillers. Crews on Oseberg East
platform and Bideford Dolphin on the Norwegian shelf report they now handle 40
lengths of drillstring an hour, on par with conventional automated drilling derricks. And
reports on horizontal well drilling on Oseberg East say, being able to handle the equipment
with great precision has avoided stuck pipe problems.
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