From the March edition of The Land Rig Newsletter:

Top drive costs are rising as suppliers scramble to keep up with demand for this critical component amid an embryonic newbuild surge driven by the unconventional drilling boom.

Suppliers report growing backlogs and wait lists for both sales and rentals in line with growing demand spurred by accelerated drilling in unconventional resource plays. Top drives are considered an essential component for the >1,000 hp rigs that dominate U.S. unconventional drilling these days. At the same time, growing demand in the international market—in particular Russia, Latin America, and the Asia Pacific region—is adding to supply pressures. However, pricing is better in North America relative to an international market dominated by term contracts.

Tesco, for example, reports an increase in its current backlog of top drive orders to 30 from 25 at yearend 2010—including 22 new orders. That compares with a backlog of only 11 at yearend 2009. Tesco expects to produce 6 to 8 units per month this year compared with 4 to 6 units per month last year. About half of its orders are for newbuilds and half are for retrofits. The company also expects to expand ...

Total mobile rig utilization in the Gulf of Mexico declined this week. Current fleet utilization is 47.1%, with 57 of 121 mobile rigs under contract or committed for work. Marketed utilization, which excludes cold stacked and other non-marketed rigs, is currently at 76%, with 57 of 75 rigs under contract.

Within the jackup fleet, total utilization dipped to 35.8%, with 29 of 81 rigs under contract or committed for work. Marketed utilization also fell, to 65.9%, with 29 of 44 units contracted. Both Hercules Offshore, Inc. and Spartan Offshore Drilling, LLC had previously working units released from contract, accounting for the drop.

Two contracted newbuilds were added to the floating rig fleet this week, but one previously contracted unit was released, so overall utilization dropped. Currently, total utilization is 82.3%, with 28 of 34 units under contract. Marketed utilization now stands at 90.3%, with 28 of 31 units under contract.

Platform rig utilization is also unchanged at 35.3%, with 18 of 51 units under contract, while marketed utilization stays at 51.4%, with 18 of 35 rigs contracted.

Inland barge utilization is down this week, as five previously contracted rigs were released. As a result, current fleet ...

A lot of newbuild land rigs are in the pipeline despite a persistent overall capacity surplus. Most are >1,000-1,500 hp, considered the ideal size rig for tackling the shale plays that dominate U.S. land drilling today.

According to a survey of data in RigData’s rig equipment database, The Land Rig Newsletter has been able to identify 85 newbuild land rigs under construction or planned. Of that total, 58 will have been built by yearend, and two are on tap for 2011. At least 25 of these newbuilds have passed their 2009 and 2010 availability dates and are still in the yard; 64 are under construction, and the rest are planned.

The horsepower breakout was 23 at 1,000 hp, 22 at 1,500 hp, 2 at 1,200, 1 each at 1,400 hp and 2,000 hp, 6 at 500-999 hp, and 3 at <500 hp. Seventeen of the rigs are being built in China, all of them 1,000 hp or 1,500 hp and all of them for the same major public driller.

Term contracts are making a comeback for drillers with high-spec rigs. Since the year started, the major drillers have seen operators increasingly use term contracts. As newbuilds roll off original contracts, the 3-year terms that undergirded their creation have been replaced with shorter-term contracts—from as little as 6 months up to 2 years. In an interesting twist, the industry continues to demand new equipment and is willing to support newbuilds with even longer—as much as 5-year—contracts.

Last fall drilling contractors reported that operators were buying out term contracts or delaying their drilling programs by idling newbuilds under tolling clauses. The added cash flow from early termination and tolling fees helped the contractors weather the lean times, and the tolling arrangements kept the rigs under the control of the operators who helped build the rigs.

There were concerns too many rigs would be pushed into the spot market and drive down day rates. But instead demand grew. Now major drillers see busy fleets, and some high-spec rig fleets are booked through the remainder of 2010. 

ENSCO has received contract extensions from Apache that will keep jackups ENSCO 86 and ENSCO 87 with the operator thru 2010.  The new term for ENSCO 86 is effective from July 31, while the new period for ENSCO 87 began May 23.  ENSCO 86 is currently working in Vermilion 78, and ENSCO 87 just began work in Main Pass 296. The rig likely will also have work in Main Pass 140 and in the West Delta area later in the year.  The two extensions now give ENSCO five of seven marketed jackups in the Gulf with contracts that run through 2010. ENSCO 75, also with Apache, and ENSCO 82 and ENSCO 68, both with Chevron are the other three.

Seahawk Drilling reports jackup Seahawk 2504 will finish its contract with Mariner Energy around the end of May.  At present, no follow-up work is in place, but Seahawk intends to take the rig to West Cameron 38 for seven to ten days of surveys and repairs.  After that, the company expects to have work for the rig.  Seahawk also will likely have multiple contracts signed possibly this week for idle jackup Seahawk 3000.  Repairs to the rig have been pushed ...