More than a dozen new unconventional plays were added to The Land Rig Newsletter’s Unconventional Drilling Report, and their inclusion illustrates the dominant role of unconventional plays in drilling markets today while it also illustrates the growing dominance of oil/liquids drilling.

 

Among The Land Rig Newsletter team’s observations:  1) Unconventional drilling now accounts for more than 71% of all U.S. drilling—a likely conservative estimate that is certain to grow in the months to come; 2) Just as oil-directed rigs have overtaken gas rigs in dominating overall U.S. drilling activity, so too have oil/liquids rigs surpassed the share of gas rigs in unconventional drilling—that ratio now stands at 51% compared with 57% for total U.S. land rigs; and 3) Shales still account for the biggest share of unconventional rigs by far at about 58%, but what surprised was the Other Unconventionals category—dominated by the panoply of plays in the Permian Basin—besting the tight sands rigs 27% to 15%.

The next step in the evolution that defines U.S. oil and gas drilling today has begun:  the migration of the business model that has driven “unconventional” drilling to “conventional” reservoirs. The Land Rig Newsletter team, in their latest Biweekly Report, notes that Helmerich & Payne is signing newbuild contracts for rigs designed for the shale plays to be deployed to conventional basins.

 

In addition, a hot new non-shale play emerging in the Midcontinent region—specifically the Mississippian play now spreading from northern Oklahoma to southern Kansas—features high-permeability, shallow carbonate reservoirs targeted for low-risk, low-cost redevelopment with repeatability and scalability via horizontal drilling and multistage fracs. The play’s leader, SandRidge, is trying the same approach in conventional reservoirs in the Permian Basin as well. This is good news for all those stacked <1,000 hp rigs, as such plays don’t need the bigger rigs they’d have to compete for against the shale plays.

From the February 2011 issue of The Land Rig Newsletter:

What a difference a year makes. A year ago, the ArkLaTex region was top dog in drilling with 24% of the U.S. land drilling market. Today, that honor is held by the Permian Basin region, which has 24%, while the ArkLaTex dropped completely out of the top three regions with 16%. Of course, industry observers are quite familiar with the story—liquids, liquids, liquids! Today, everyone wants to be in liquids. And that is quite evident in the data as well.

 

Rounding out the top three regions by market share are the Rocky Mountains with 18% and the Midcontinent with 17%—areas rich in liquids opportunities.

Callon Petroleum Company reported total proved reserves, based on internal engineering estimates, have increased to 13 MMboe as of September 30, 2010, a 34% increase year-to-date. In addition to its onshore assets in the Haynesville Shale and Permian Basin, Callon has operated onshore and offshore in the Gulf Coast region since 1950. Its proved reserves in the deepwater Gulf of Mexico and GOM Shelf account for 67% and 14%, respectively, of Callon’s total proved reserves.

Could we see a pullback in the Marcellus active rig count next year?  Early indications seem to suggest that possibility as more than one operator is talking about modifications and/or reductions to their programs, Cabot plans a 5-rig Marcellus program next year, down from 7 rigs currently.  Range, one of the leading companies in the play, plans to reduce the number of wells drilled per pad, which could mean fewer rigs as well.

 

There is no slowdown for oil/liquids drilling, however. Look no further than the Permian Basin to get a sense of the huge migration from gas to liquids over the past year.  Currently, there are 374 active rigs drilling in the region, an 82% increase vs. 2009, according to the latest issue of The Land Rig Newsletter’s Biweekly Report.  Back in early July, the Permian had 327 working rigs. Throughout the 3Q, the count continued to rise, resulting in an average weekly count of 342 for the quarter. The Land Rig Newsletter team expects this trend to continue for the near future.

Further evidence of a plateau is emerging in U.S. drilling activity: the traditional rig count (those rigs drilling to below 5,000 ft), as tallied by the latest issue of The Land Rig Newsletter’s Biweekly Report, retreated from its climb toward 1,500, a level unattained since 2008. A drop of 10 units in this metric from the prior biweekly period accounted for almost the entire decline in the overall rig tally for the week ended August 27.

 

Just as the unconventional drilling activity has driven the rig count in recent years, it also seems to underpin the emerging plateau. Noteworthy were decreases of 9 in Louisiana, accompanied by a 7-unit drop in the Louisiana core Haynesville, and a surprising reversal in North Dakota, matching the 6-rig fall in the Bakken. The Permian and ArkLaTex regions fell by 15 and 13, respectively, while the Midcontinent picked up 8 rigs as Granite Wash action heated up.