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  • Unconventional Plays Dominate Drilling Markets

    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%.

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  • 1st Birthday of UDR Compares July 2010 to July 2011

    The Land Rig Newsletter team acknowledged the first birthday of The Unconventional Drilling Report by comparing the July 14, 2011, issue with the first UDR they published on July 15, 2010. Among the comps:

     

    The summary rig counts for the shale, tight sands, and coalbed methane plays were little changed from a year ago at this time. But some of the individual plays have changed dramatically:  Haynesville down by 59, Eagle Ford up by 104, Barnett down by 28, and the liquids-rich DJ Basin more than doubled while the other three, more gas-prone, tight sands plays all dropped sharply. Oil-directed rigs in the shales and tight sands were up by 88; gas rigs were down by 64.
    Rigs drilling horizontal wells jumped by 72, while vertical rigs fell by more than half.

     

    What will the UDR metrics will look like a year from now? First, there will be a very big increase in summary rig counts—starting with the July 28 issue, when the team rolls out data for a large number of new plays—all liquids-focused.

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  • Drilling Industry Abuzz Over New York Times Article

    The drilling industry is abuzz over what The Land Rig Newsletter team describes as a “clumsily transparent hatchet job” by the New York Times on operators’ shale reserves estimation and accounting methods. Writing in the latest issue of The Unconventional Drilling Report, the team contends that “despite the somewhat lurid insinuations about ‘a Ponzi scheme’ and ‘another Enron,’ we don’t think this will gain much traction with serious investors or lenders—and thus don’t see a significant impact on drilling.”

     

    The LRNL team goes on to note that Barnett Shale gas production has quintupled to more than 5 Bcfd since 2004. And since the peak of 180 in September 2008, the Barnett rig count had dropped by more than 100 by 1Q 2011. Yet Barnett gas production climbed by 13% during that collapse. Average Barnett production per well slipped only 3% from September 2008 to December 2010 (latest data). Looking at the bigger picture, Barnett per-well production has jumped from an average 305 Mcfd in 2004 to an average 385 Mcfd in 2010.

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  • Other Tight Rock Resource Plays Continue to Emerge

    Last year Chesapeake CEO Aubrey McClendon suggested that there were no more “major” shale discoveries to be made in the U.S.  Some may interpret that as an imminent swan song for the resource plays that have transformed the nation’s energy scene. However, The Land Rig Newsletter team contends that there are a lot of other tight rock resource plays emerging that in the aggregate could amount to something pretty major.

     

    In the June 2 Unconventional Drilling Report, the LRNL team posits that liquids-focused tight rock resource plays will continue to proliferate in the most venerable of oil arenas, e.g. Oklahoma and Texas, even if there are no more “major” plays on the order of the Eagle Ford to be confirmed. A flurry of mergers, acquisitions, and joint ventures will continue this year, spurring a fresh wave of drilling in these “lesser” liquids plays that will extend well into 2012—assuming oil prices hold up. But unconventional rig count gains will be reined in by softness in gas shale tallies that will probably persist through next year.

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  • Unconventional Rig Counts Hit New Highs

    It seems as if The Land Rig Newsletter team can’t publish an issue of The Unconventional Drilling Report without acknowledging yet another milestone. UDR active rig counts have hit new highs for both total shales (687) and total unconventionals (at 805, surpassing 800 for the first time). The UDR also has a new record for the number of oil-directed rigs among both total shales (234) and total unconventionals (257), as well as a fresh peak for unconventional horizontals (680).

     

    None of this dissuades the LRNL team, however, from their central thesis that tailwinds including low gas prices and drilling services capacity/takeaway constraints will slow growth in unconventional drilling this year. The signs are already at hand:  The UDR’s YTD average unconventional active rig count is up only 3% from 2H 2010’s average but 50% higher than 1H 2010’s average. In addition, new environmental regulatory hurdles could add more tailwinds to unconventional drilling growth, in the wake of Chesapeake’s apparent wellhead breach and subsequent spill of flowback fluids during a Marcellus frac job in Pennsylvania last week.

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  • Migration of Oil & Gas Drilling to Conventional Reserves

    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.

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