Drilling Advances

There was a time when serving up beer and barbecue meant all was well in the oil patch. These flimsy barometers of industry health were part and parcel of the once-frequent wingdings that drilling contractors hosted back in the day, to show off delivery of yet another newbuild land rig.

Newbuild fests have since been tossed into the same dust bin as training manuals that speak strictly to the male gender, replaced with the far more subdued, but no less impactful, upgrading of rigs to super-spec class. These newly muscled rigs are earmarked solely to meet the demands of North America’s unconventional sector, characterized distinctively by the fast-paced drilling of increasingly longer laterals from multi-well pads. 

With dayrates still below the threshold required to justify a wave of new construction, contractors opt to upgrade suitable rigs with AC power systems, automation, beefed-up top drives, 750-psi circulating systems, rotary steerable systems (RSS) and bolt-on “walking” packages. “They’re virtually new rigs at the time when they’re finished going through one of these major upgrades. So, they have the life of a newbuild rig,” says Mark Siegel, chairman of Patterson-UTI Energy. 

Of the cumulative U.S. onshore fleet, Helmerich & Payne estimates that only 400 rigs carry the super-spec label, with another 200 to 250 rigs considered upgradeable. At near 100% utilization, the demand for super-spec rigs has prompted once atypical long-term contracts, many with dayrates in the low $20,000s. “Every single one of the super-spec rigs that can work is working today,” Evercore ISI analyst James West told the Houston Chronicle last July.” Now we’re seeing that exploration and production companies can’t get these rigs if they don’t sign contracts.”

As reflected in year-end 2017 earnings reports, that trend has not abated.

$25,000/day trigger. “Fiscal 2017 witnessed the largest ramp-up of U.S. land rig activity in the company’s history, which more than doubled, even in the face of oil price uncertainty and volatility,” says John Lindsay, president and CEO of 98-year-old Heimlich & Payne. “We began the fiscal year with 95 rigs contracted in U.S. land, and after reaching trough operating levels of 66 rigs in May of 2016, we close the year with 197 rigs, an increase of 102 (advanced) FlexRigs, most of which were upgraded to super-spec capacity.”

An average 15% increase in lateral lengths last year contributed heavily to the increased demand for super-spec rigs, Lindsay said. “The average lateral, I think, is still around 7,000 ft. What we’ve seen is, when lateral lengths get to 7,000 to 8,000 ft, that’s when you begin to see the traditional 5,000-psi (circulating) systems begin to be stressed.” As of now, H&P has 80 rigs locked in term contracts for FY 2018, 30 in FY 2019, and another seven rigs under contract for FY 2020. 

Elsewhere, with no newbuilds on the horizon, Patterson-UTI plans up to 12 major rig upgrades for 2018 delivery, says CEO Andy Hendricks. Last year, the contractor completed seven upgrades to its advanced APEX-XK fit-for-purpose rig design, all of which are working. “Within our own fleet, we have 130 super-spec rigs, of which 98% have contracts,” Hendricks told analysts on Feb. 8, nearly three weeks after a deadly explosion on one of its rigs in Oklahoma.

Nabors Industries expected to wrap up 2017 with the deployment of two new-generation PACE-M1000 rigs, which bring the same pad capabilities as the previous generation, but with 1-MMlb hookload and higher racking capacity, the company says. Along with the two newbuilds, Nabors upgraded two PACE-X rigs in 2017 with its exclusive Quad configuration, which “incorporates the ability to rack and handle four joints of drill pipe in a single stand.”

National Oilwell Varco (NOV) believes higher dayrates in 2018 could spur more newbuilds. “We believe dayrates north of $25,000, in contrast of longer duration, will be required before we see broad-based resumption of new land rig orders in North America—conditions which could arrive as early as late in 2018,” says senior V.P. and CFO Jose Bayardo. In February, NOV launched a top drive upgrade package, geared specifically to Permian basin-like drilling conditions. The upgrade increases existing top drive torque to 32,120 ft-lb and drillstem speeds up to 180 rpm. 

Canadian fleet shrinks. In Canada, operator demands for larger pumps, 7,500-psi circulating systems, walking systems and advanced automation technology have forced many rigs to the junk heap, according to the Canadian Association of Oilwell Drilling Contractors (CAODC). Brian Krausert, chairman of both the CAODC Forecasting Committee and Beaver Drilling Ltd., said the nation’s total land rig fleet, super-spec and otherwise, stood at 634 as of October 2017, down from its 902-rig peak in November 2007. “Rigs that cannot compete in this market will be decommissioned, cannibalized and/or moved out of the region. Based on this, 2018 will see a further contraction of the rig fleet, as drilling contractors continue to write off older, slower rigs,” Krausert wrote as part of the CAODC’s 2018 forecast. 

Precision Drilling plans to upgrade 10 to 20 of its Super Triple (ST) rigs this year. “Both our ST-1200 and our ST-1500 (rigs) were designed to be inexpensively upgradeable, with clip-on walking systems costing approximately $1 million, third pump installation is less than $700,000, and high-pressure upgrades that cost less than $500,000,” says CEO Kevin Neveu.

As of mid-February, Neveu said the top rates for the Canadian firm’s extended-reach, pad-walking ST-1500 were in the mid $20,000s, while the previous generation, but similarly equipped, ST-1200 commands dayrates in the low $20,000s.

About the Authors

Jim Redden

Contributing Editor

Jim Redden is a Houston-based consultant and a journalism graduate of Marshall University, has more than 40 years of experience as a writer, editor and corporate communicator, primarily on the upstream oil and gas industry.