Rig Count Update: Contractors Announce 14 Newbuild Land Rigs For Unconventional Plays

Hart Energy's exclusive rig counts measure drilling intensity. Our counts exclude units classified as rigging up or rigging down, and also exclude rigs drilling injection wells, disposal wells or geothermal wells. The result is our most accurate assessment of rigs on location working on oil or gas programs as of the sample date. While our process results in a rig tally that is lower than the published numbers from the non-proprietary rig-tracking agencies, Hart Energy believes our product presents the most accurate picture of what is actually occurring in the field.

The technology rig movement exhibited the sparkly dazzle of a Fourth of July fireworks display during the last week when two U.S. land contractors announced 14 newbuild high-spec rigs for customers targeting unconventional plays domestically.

The two events bring newbuild rig announcements to 41 since April 1, 2011, and 64 year-to-date. Contractors have announced plans for more than 180 land-rig newbuilds or upgrades since January 2010 as the domestic drilling market continues a strong upward trajectory coming out of the post-2008 commodity price collapse.

A majority of announced newbuilds are 1,500 horsepower AC-VFD units and feature automated pipe and equipment handling, including iron roughnecks and top drives, computer-assisted drilling controls, and often incorporate some facet of quick mobilization, whether it is trailer-mounted modular configurations or the ability to move about in single-site, multiple well-pad drilling applications.

Both U.S. and Canadian contractors are building rigs for the U.S. market as rapidly expanding activity in North American unconventional plays creates more demand than the current domestic rig fleet can provide, particularly for 1,500 horsepower high-spec units.

Last week’s announcements included 12 newbuilds from Helmerich & Payne IDC, along with two newbuilds for Union Drilling Inc. The Union Drilling newbuilds are headed to work in the Fayetteville shale, where the company has been a long-time rig supplier to ExxonMobil subsidiary XTO Energy.

The Helmerich & Payne rigs will be delivered to eight different customers in the U.S. and are earmarked for the Eagle Ford shale, the Cana Woodford shale, the Bakken shale, the Marcellus shale as well as other domestic destinations.

The HP announcement brings the company's most recent newbuild effort to 57 units since March 2010 and represents a 30% increase in the company's FlexRig technology rig fleet. Since 2005, Helmerich and Payne has announced 197 new FlexRig units with 26 currently in the construction queue for delivery into 2012.

Higher spec technology rigs typically cost $18 million each, give or take, depending on equipment configuration, and are usually built under three-year contracts, though a few contracts extend out to five years.

Contractors are manufacturing many of the rigs themselves, including the Helmerich & Payne units as well as most of the units for the Canadian drillers.

Last week's newbuild announcements follows a spate of similar news during the last 90 days. San Antonio-based Pioneer Drilling Co. is constructing four newbuilds, including three 1,500-horsepower and one 1,000-horsepower AC-VFD unit for delivery in 2012. Both Nabors Industries and Patterson-UTI Energy have announced several dozen newbuilds to date with the possibility of more coming when each company releases its second-quarter earnings later this month.

But it's not just U.S. land contractors building for the U.S. market. Other recent announcements include:

Precision Drilling Corp. -- Canada's largest driller has announced 37 newbuilds since January 2010, including 28 in 2011. Thirteen are headed to the U.S., most of which are 1,500-horsepower AC-VFD Super Triples. Of the 28 newbuilds, 21 will be delivered in 2011 with seven scheduled for 2012.

Ensign Energy Services Inc. -- Canada’s second-largest driller plans 22 new ADR AC units in the 2011-12 time frame, including 11 earmarked for the U.S. One rig was recently delivered to California’s Kern County, where it has begun work for Berry Petroleum Co.

Trinidad Drilling Ltd. -- The Canadian driller will increase the size of its U.S. drilling subsidiary to 70 rigs, including four newbuilds and four recent purchases on which the company will spend $44 million to upgrade to 1,500-horsepower AC-VFD units.

Additionally, Canada's Xtreme Coil Drilling Corp. also announced two additional hybrid drilling/coiled tubing rigs for the U.S. market, including at least one rig destined for the Eagle Ford shale.

The announcements last week indicate future expansion in rig count and are a partial answer to a question posed previously in a Hart Energy article on domestic land-rig construction. The issue is whether the industry is witnessing the replacement of an aging fleet, or seeing the beginning of a sustained newbuild cycle as operators transition from the delineation and optimization phases in unconventional plays into the manufacturing model.

The most recent announcements are for equipment to be delivered in 2012 suggesting rig count should expand in unconventional plays for the foreseeable future.

Additionally, newbuild rigs are a factor signaling a potential revival in the offshore drilling industry as well.

Current Rig Count

Trends

Historical

Source: Hart Energy, Smith Bits (A Schlumberger Co.)

Contact the editor, Richard Mason, at rmason@hartenergy.com.