Familiar themes continued to resonate at last week’s IPAA investor conference in New York:  Liquids rule, natural gas is in the tank and likely to be there for a while, frac crews are hard to come by, and takeaway/processing issues are everywhere. One of the more interesting comments heard at the conference pointed to the industry putting another 200 rigs to work this year, followed by another 200 rigs in 2012.

 

Generally, The Land Rig Newsletter team believes the winds are blowing in a positive direction for adding rigs—relatively high oil prices driven by strong global demand and political instability in the Middle East. However, crosswinds from known—as well as unforeseen—sources will likely take some of the wind out of the sails, causing one to remain somewhat skeptical of such robust growth. Whether it’s the Rockies, Midcontinent, or Appalachia, it’s the same story:  Plays are more complicated than commonly thought, frac crews are in short supply, and takeaway constraints are either present or near.

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.

A stunning 21-unit drop in the Bakken early this month pulled the entire unconventional drilling group down. Had the Bakken tally remained flat, the unconventional rig count would have broken 800 for the first time ever after hovering near that milestone since midsummer, according to The Land Rig Newsletter’s Unconventional Drilling Report.

 

What makes it doubly surprising is that the biggest biweekly decline has occurred in the Bakken, everyone’s darling these days. But 800 reaching is still just around the corner. The Bakken count decline masks a surge in the float—rigs that are moving onto or off or are waiting on location.

 

In the latest issue of The Land Rig Newsletter’s Biweekly Report, the Rockies had by far the biggest float number among regions, both in absolute terms and especially as a percent (15%) of the active fleet in the region. Nearly 70% of that Rockies float was in the Bakken.

A significant shift in drilling depth is seen in a range of metrics provided in the latest issue of The Land Rig Newsletter’s Biweekly Report: a trend toward greater depths.

 

Rigs drilling to 10,000-14,999 ft rose to 641, a 47-unit increase from the previous Biweekly Report. The expansion was broadly based, as the top five companies added only 5 rigs to the overall increase.  An offsetting downward trend was seen in rigs drilling to 5,000-9,999 ft. This class dropped 13 to 383 rigs. The trend to deeper drilling in the 10,000-14,999 ft depth range was expressed most strongly in two regions, the Rockies and Permian. In the Rockies this category’s tally rose to 144, 69% of the regional total. In the Permian, this depth range count rose to 183, 52% of the regional total.

 

The move to deeper drilling is also reflected in the horsepower tallies. Rigs with ratings of 500-1,999 hp now represent 84% of all active rigs. At the upper end of that range, the 1,000-1,999 hp group holds sway at 70% of the total active fleet.

Will we see a spike in tight gas drilling in the Rockies this year? A recent surge in permit activity in some of the key tight gas basins would suggest that scenario. According to analysis in the March issue of The Land Rig Newsletter, permits for the four major tight gas basins combined more than doubled from their levels in February, leaping to 230 from 98. An eye-popping jump of 245% was logged in Piceance Basin permitting activity in March, while permits in the DJ and Green River basins more than doubled in the same timeframe.

 

The tight gas surge would seem counterintuitive in light of recently slumping gas prices, considering that these areas remained moribund in comparison with the shale plays when gas prices collapsed last year. Could it be that the shale plays’ advances in drilling efficiencies and  aggressive multi-frac strategies are migrating to the tight gas plays, bolstering IPs and making these plays more economic despite gas price slippage?

Oil and gas companies are getting off to a fast start in 2010 as 20 more operators entered the field in recent weeks.  With respect to rig activity, The Land Rig Newsletter Biweekly Report’s first issue of 2010 noted a 6% surge in the overall rig count compared to yearend.
 
The good news is that gains were generally widespread.  The shallow rig count (<5,000 ft) grew as operators sought oil, lifting the count by 41 to 148 rigs, with 32 of the additional rigs chasing oil. The deeper rig count also rose, up 28 to 1,065 rigs. Rigs seeking gas in deeper pay rose by 50 to 758 rigs; however, oil-seeking rigs in the Traditional count (>5,000 ft) dropped by 22 to 307 rigs. Top gains were in the Permian Basin and the Rockies, with increases of 9 rigs and 13 rigs, respectively.  Major unconventionals remain in the driver’s seat—notably the Haynesville, up 10 rigs to 114, and the Marcellus, up 5 to 70.