Posted on 01/07/2015 10:30:55 AM PST by thackney
Even the most technologically advanced drilling rigs are finding less work as oil prices crash.
Oklahoma oil driller Helmerich & Payne expects 40 to 50 of its souped-up drilling machines to come off the market over the next few weeks, after 11 of those models went idle in the past month, it said in an investor presentation Tuesday.
The firm added it has seen spot prices for its so-called FlexRig units fall 10 percent, and some oil companies are dropping out of contracts early. It’s a marked decline for rigs that had emerged in recent years better equipped than old mechanical models to take on dense shale formations, powered by AC top drives and capable of “walking” between drill sites with huge mechanical feet.
Pressure on those rigs shows just how widespread the impact of the oil’s $58-a-barrel slide will be, as Helmerich & Payne’s new models are the cream of the crop in the U.S. land rig market, said Rob Desai, an analyst with Edward Jones.
“H&P is one of the stronger operators,” Desai said. “Other players are probably going to be hit even harder.”
Twenty-six U.S. land rigs stopped working last week, with a dozen of those idled in Texas, according to Baker Hughes, which has reported declines in the U.S. rig count for four straight weeks. Fourteen of last week’s idled rigs were horizontal drillers, which target shale plays.
Praveen Narra, an analyst with Raymond James, says as oil prices have fallen, his firm has revised the number of drilling rigs it expects to come off the market this year from 550 to 850, peak to trough.
“Higher-end rigs will be less affected, but it’s hard to say anyone will be immune,” Narra said.
Analysts with Tudor, Pickering, Holt & Co. wrote Tuesday it’s “worrying that HP has already received 4 early termination notices for long-term contracts,” because multi-year contracts have historically been linked to larger oil companies with healthier balance sheets.
Still, it’s unclear whether the falling rig count will curb U.S. oil output. Oil prices have been cut to less than half their 2014 peak because global oil markets have become oversupplied as U.S. shale oil patches churn out more petroleum.
A few years ago, a falling U.S. rig count would likely denote that oil production will decline over a short period of time – but with new technologies, that’s not guaranteed, analysts say.
Oil drillers have been using multi-well drilling platforms called pads to bore an average of four wells in quick succession. They’re also drilling quicker, at lower cost than in past years. Before oil prices collapsed, demand for high-end rigs was expected to start petering out in two years, Desai said.
“We’ve had all these budget cut announcements but very few companies say they won’t hit their production targets,” Desai said. “If they do keep producing, we’re not really solving the supply issue.”
As an example, Midland, Texas-based Concho Resources on Monday said it would cut its 2015 capital spending plans from $3 billion to $2 billion, though it said it still expects oil production to grow 16 to 20 percent.
Previous information about their rigs:
Report: Increased rig demand lifting drillers’ prospects in 2014
http://fuelfix.com/blog/2014/03/21/report-increased-rig-demand-lifting-drillers-prospects-in-2014/
March 21, 2014
Helmerich & Payne and other early adopters of new rig advances have held an edge over latecomers with older models, but the technology gap is narrowing and a recent upturn in demand may begin leveling the field, according to a report released this week.
The efficiency gains that drove U.S. shale production rates higher in recent years have begun to slow as the number of wells drilled for every rig flattens, increasing demand for rigs and lifting prices for advanced-rig contracts across the board, credit ratings agency Fitch Ratings said Thursday.
Fitch analysts wrote that the slowdown in efficiency gains has been spotted in the Eagle Ford Shale in South Texas, the Marcellus Shale in Pennsylvania and other major plays.
Earlier this year, Houston-based drillers Nabors Industries and Patterson-UTI Energy reported higher earnings as West Texas oil companies switch out older rigs for souped-up horizontal drilling rigs in the Permian Basin.
“We believe we’ve seen the bottom,” Nabors CEO Anthony Petrello told investors last month. “We believe we could deploy more in the field and see more demand.”
U.S. land drillers that began revamping their fleets in the late-1990s and early 2000s are seeing operators use more of their rigs and pay them higher daily fees, largely because operators have favored faster units with rotary steering systems, top drives and massive mechanical feet that let them move between well sites.
Shale wells rapidly deplete after oil producers first begin pumping crude, forcing efficiency gains that eventually led to the widespread adoption last year of multiwell drilling platforms called pads, which enable producers to drill several wells for each rig they deploy.
Tulsa, Okla.-based Helmerich & Payne, the first to roll out new rig upgrades in the 1990s, saw its utilization rate hit 84 percent at the end of last year, 15 percentage points higher than its closest competitor, Patterson-UTI. And H&M’s day rates — about $28,000 at the end of 2013 — were higher than its peers, as well.
“The first mover drillers will continue to realize stronger metrics,” Fitch analysts wrote.
Several land drillers have set a “moderate outlook by providing largely flat utilization rate” this year as they worry efficiency gains could increase again and a large number of new rigs coming on the market to tamper demand, the credit ratings agency said.
I recall when people were saying that personal computers could never compete with big iron.
Men might as well project a voyage to the Moon as attempt to employ steam navigation against the stormy North Atlantic Ocean.
- Dr. Dionysus Lardner (1793-1859), Professor of Natural Philosophy and Astronomy at University College, London.
They will never try to steal the phonograph because it has no `commercial value.’
- Thomas Edison (1847-1931).
What use could this company make of an electrical toy?
- Western Union president William Orton, responding to an offer from Alexander Graham Bell to sell his telephone company to Western Union for $100,000.
What can be more palpably absurd than the prospect held out of locomotives traveling twice as fast as stagecoaches?
- The Quarterly Review, England (March 1825)
That the automobile has practically reached the limit of its development is suggested by the fact that during the past year no improvements of a radical nature have been introduced.
- Scientific American, Jan. 2, 1909.
There is not the slightest indication that [nuclear energy] will ever be obtainable. It would mean that the atom would have to be shattered at will.
- Albert Einstein, 1932.
I confess that in 1901 I said to my brother Orville that man would not fly for fifty years. Two years later we ourselves made flights. This demonstration of my impotence as a prophet gave me such a shock that ever since I have distrusted myself and avoided all predictions.
- Wilbur Wright (1867-1912) [In a speech to the Aero Club of France (Nov 5, 1908)]
Computers in the future may...perhaps only weigh 1.5 tons.
- Popular Mechanics, 1949.
There is no reason for any individual to have a computer in their home.
- Kenneth Olsen, president and founder of Digital Equipment Corp., 1977.
This is sure to kick all the MLP investors in the pooper!
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Not all MLP’s are in trouble. Some were run based upon long term contracts.
The laws of economics show no favorites and no allegiances. In a free market, the law of “supply and demand” favors that which is most advantageous for the aggregated market. Cheap oil is bad for drillers, but good for everyone else. Henry Ford put buggy whip manufactures out of business, but the advantage to the market was undeniable. If there continues to be less exploration, scarcity will result in higher fuel prices to consumers which will in turn lead to economic profits for exploration etc. If one is invested in a drilling company, it is time to adapt to the market, it is never a good idea to try to force the market to adapt to a particular business or business model.
But here’s the question: how much oil is left in the Persian Gulf region? And don’t forget about the potential for political instability in that region, which will cause supply disruptions.
Forest Oil Corporation Rig Walking, a fun video.
https://www.youtube.com/watch?v=lj2iesgkEEs#t=14
Even on long term contracts, the yields will fall, and become far less attractive.
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My grandfather operated a walking dragline that moved similarly. The cab was 4 stories off the ground, 150 foot boom. A foot on either side bigger than our pick up.
When I was 12, got to drive it. Still remember that day...
Plus: “Peak Oil” production for the United States occurred in 1970, and never shall be exceeded.
Until a few years ago, this prediction held.
Sure, those contracts are not open ended.
But some the oil/gas MLP’s are not producers. Plenty of pipelines delivery products are done this way. Some of the Natural Gas Liquid Suppliers did 7~10 year supply contracts before building the fractionators.
They are certainly not all in trouble, although many have had a significant drop in stock price at this time. Some good buys if you understand what you are buying and the associated risks.
I know H&P was on course to build another 3-4 Flex rigs per month in 2015.
...was just told that in November at their rig-up yard in Greensport.
I'm sure that is being re-evaluated as prices keep slipping downward.
We still have not reached the +10 million barrels a day of crude oil from 1970, but we are getting close.
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS2&f=M
A free market unencumbered by government force will always proceed on the most efficient path. Disruptions might create a market demand for a different fuel, other sources or lessen demand. From a national defense perspective, we should drill here drill now and isolate Muslim financial influence.
Yes we are close.
However, we have set a price ceiling, long term. Once price exceeds say $70, we can produce enough to keep it there.
That is my long term guess.
Natural gas went through the same transition. Low prices, long term.
Some day, the 1973-2012 era for energy will seem like a bump. When the peak production concept was dispelled.
What does MLP have to do with oil?
Most MLPs are oil exploration investments.
MLPs are required by law to be invested in increasing or improving energy supplies.
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