The surge in oil drilling shows no sign of letting up. For the foreseeable future, there are ample economically viable opportunities for liquids drilling, according to The Land Rig Newsletter’s Biweekly Report. Even as sizzling plays such as the Bakken and Eagle Ford still have a lot of room to run, new liquids plays are emerging. Such new plays can be transformational. For decades North Dakota’s rig count barely registered. Thanks to the Bakken, the state now accounts for almost 10% of the nation’s rig count and has perhaps the strongest economy. The shift from gas to liquids drilling has been just as seismic. Looking at oil rig vs. gas rig data for 3Q 2010 vs. 3Q 2011 (July-August), the exchange of respective market shares is uncannily even. The gas rig share of the total count fell from 56.3% to 43.6%, while the oil rig share of the total count jumped from 43.7% to 56.4%. YOY, unconventional oil rigs have accounted for about 9 of the nearly 13 percentage point gain in the overall oil rig count.

Corporate debt markets have been an attractive source of funding for U.S. E&P companies in the current era of easy money. Interest rates are at or near record lows for high-grade and high-yield companies alike, resulting in a number of E&P companies tapping these markets in recent months. However, the current environment of easy money could be coming to a close. Despite this, the outlook for drilling remains generally positive, and particularly so for companies in unconventional resource plays such as the Bakken and Eagle Ford, according to the latest issue of The Land Rig Newsletter’s Unconventional Drilling Report.

 

Companies have upsized debt offerings in recent weeks. Recent examples include Concho, which increased its offering from $400 million to $600 million, and Brigham Exploration, which increased its debt offering from $250 million to $300 million. Debt financing is allowing companies to add rigs. One example is Brigham. The company recently announced plans to add a tenth rig to its Williston program by July and plans to add another 2 rigs to the program in early 2012.

On the surface, drilling in the leading resource plays has all the markings of having entered a lull period. The unconventional rig count has been relatively unchanged for three consecutive quarters, and utilization has been fairly stable near 80% since early February. However, there are serious riptides underneath this relative calm, The Land Rig Newsletter team warns in the latest issue of The Unconventional Drilling Report.

 

The strongest Q1 currents were felt in the Eagle Ford, where the rig count surged 25% vs. Q4, and the Bakken, where the count was 15% higher. The Barnett, down 12%, and the Haynesville, down 7.5%, provided countervailing currents. Rig markets are likely to remain tight in the Eagle Ford, Bakken, and DJ basins throughout Q2. More generally, the LRNL team expects growth in oil-directed drilling to be in the double-digits in Q2 as growth in liquids-focused plays expands. Also, the LRNL team expects rig counts in dry gas areas, such as the Haynesville and the northeast window of the Marcellus, to extend recent declines during the quarter.

The driller contractor community should have a busy year, according to The Land Rig Newsletter team in the latest issue of The Unconventional Drilling Report. Oil rigs are about to pierce the 250 level for unconventional plays covered in the UDR, up from 177 in the inaugural July issue. Could it hit 300 by midyear? It is possible. Since October, the count has expanded by 51. Operators are throttling up development efforts in liquids plays with proven economics and are putting the pedal to the metal at identifying and appraising new liquids opportunities.

 

Crude prices remain at levels that support ongoing exploration for unconventional oil and liquids in the U.S., and downside risks appear manageable. This was particularly evident at this year’s winter NAPE conference. The Niobrara, Wolfberry, and Bakken all had strong showings in the exhibit hall. Moreover, industry “buzz” at the conference can be summed up by one comment: “If you have a good play, money is not an issue. There is more money available now than ever before.” 

Rig utilization in the major unconventional plays broke above 80% for the first time since last October, according to the February 10 issue of The Land Rig Newsletter’s Unconventional Drilling Report. While most areas had gains, the Eagle Ford and Bakken were standouts where utilization rates improved by 12% and 4%, respectively. Both the Eagle Ford and Bakken were at 130 active rigs and had 96% and 83% utilization, respectively. 

Unconventional rig counts seem to nudging into record territory, at least by the metrics the UDR tracks. The combined total shale count hit an apparent all-time high of 675 as of February 4—courtesy mainly of a 13-unit surge in the Eagle Ford and a 7-rig gain in the Bakken. Meanwhile, the tally for total combined unconventional rigs was 795. The LRNL team’s aggregate unconventional count has never topped 800, but it could do that very soon. Once the UDR starts tracking another five unconventional liquids plays later this quarter, 800+ unconventional rigs will be a routine occurrence in the newsletter.

Tracking the metrics for horizontal drilling points to another fundamental change on the land rig scene. Specifically, the number of rigs drilling horizontally for oil totaled 302, according to the latest issue of The Land Rig Newsletter’s Biweekly Report. That compares with 107 such rigs at this time last year. Oil targets comprise 34% of all horizontal drilling, up from 18% last year.

 

Texas was a substantial source of the increase in oil-directed horizontal drilling. In fact, 95 of the 195 added rigs were in Texas. Not a total surprise, given the strength of the Eagle Ford and growing activity in the Barnett Combo play. The Bakken was another major source of growth, doubling the oil-directed horizontal rig count in North Dakota to 114 as of January 28. Other states making meaningful gains include New Mexico with 19 and Oklahoma with 7.  In Oklahoma, the Granite Wash and Cana Woodford are likely sources of growth. In New Mexico, recent developments in the Bone Spring/Avalon Shale appear likely to drive the state’s horizontal oil count even higher.