From the April 2010 issue of The Land Rig Newsletter:


Notably, Rich Kinder of Kinder Morgan, during an interview with Bloomberg, recently talked about bottlenecks at natural gas trading hubs including Perryville due to “booming shale production.” Despite the hyperactivity in the area, meaningful expansion will take a number of years. According to a recent FERC presentation, Perryville is expected to have a capacity of roughly 14 Bcfd by 2012. We counted one major project, the Haynesville Connector, that will enter service in the near future. That project will add 1.5 Bcfd of additional capacity. The next major project on the docket is the Tiger pipeline, which is scheduled to begin offering service in the first half of 2011.


Other notable projects include Enterprise’s Haynesville Extension, which will transport up to 2.1 Bcfd, and Enbridge’s LaCrosse Pipeline, a 42-inch conduit from Carthage to the Sonat pipeline in Louisiana, due for start-up in 3Q 2011 and late 2011 or early 2012, respectively.

From the April 2010 issue of The Land Rig Newsletter:


Consider that the amount of takeaway capacity is fairly fixed this year. Moreover, the Perryville, a critical link to major interstate pipelines serving Midwest, Ohio Valley, and Northeast markets is becoming increasingly congested. According to the EIA, Perryville had 17 pipeline interconnects and was capable of delivering more than 10 Bcfd in 2008. Because of its location and scale, competition at the market center has become fierce as production from the Barnett, Fayetteville, Woodford, and Haynesville all vie for market share through this important gateway. At Perryville, Haynesville gas finds its way to key markets across the eastern half of the country via several large interstate pipelines, including the Texas Gas, Tennessee Gas, Trunkline, ANR, and Columbia Gulf systems.

Times are tough for owners of small, mechanical rigs today. The 1Q 2010 issue of The Land Rig Newsletter’s Day Rate Report reported that fleet utilization of <500 hp rigs has languished below 50% for more than six months now. In fact, that group’s utilization rate has been above 60% only three times since October 2008. Consequently, some small drillers in conventional-gas-prone areas that are still working are doing so at cash operating costs.

The Day Rate Report also cited just one regional rig class in the U.S. that failed to recover in terms of rig rate appreciation from October 2009 to April 2010: Day rates for <500 hp rigs in the Midcontinent dropped again last quarter while rates were up everywhere else for every other type of rig.

These indicators suggest that the small drillers with the low-spec mechanical rigs will likely undertake most of the scrappage this year and be more likely to close their doors. 

From the Biweekly Report with data as of April 23, 2010


Counts in the shale plays slid by 17 rigs to 477, ending last period’s torrid pace of a 24 unit gain. Declines were highest in the Haynesville, Barnett, and Marcellus at 14, 6 and 5, respectively. The Haynesville play took most of that hit with a 9-rig decline split among Chesapeake, EnCana, and Petrohawk. In contrast, other shale plays rose, but not enough to overcome the decline. Of special note is the Eagle Ford, which now has 49 active rigs. The play has gas, gas condensate, and oil legs, with the more liquid-prone segments garnering most of the attention now. Petrohawk moved 2 rigs from the Haynesville into the Eagle Ford to take advantage of higher liquids prices and is now running 7 rigs there. Surprisingly, tight gas sands plays experienced a resurgence, as another 10 rigs were put to work, raising that segment total to 108.

According to 1Q 2010 surveys by The Land Rig Newsletter’s Day Rate Report, drillers are generally optimistic over market conditions in oil basins.  However, drillers reported that lower natural gas prices have begun to dampen prospects for more drilling in the near term, and many operators are pessimistic over the low gas price as well.  In any case, market conditions in the industry have improved since the same time last year when drillers in the 1Q 2009 survey reported prospects for work were very low for both oil and gas drilling.  At that time, there were no wait lists, no bid inquiries for future work, and work backlogs were at a standstill. In the current 1Q 2010 survey, however, market conditions are showing an improvement since the 4Q 2009 survey.  Observing the four surveys completed and published in the Day Rate Report over the last year, all indicators point to “bottom” in late 2Q 2009 or early 3Q 2009 and improvement in 4Q 2009. 

From the Biweekly Report with data as of April 9, 2010


The Haynesville and Marcellus are both expected to reach about 200 rigs near yearend, according to a number of executives at IPAA OGIS last week. That’s an increase of 80 for the Haynesville and 112 for the Marcellus. Also joining the party is the Eagle Ford, where the number of rigs is also expected to roughly double to 100. What’s ahead for the Haynesville? As of April 9, there were 120 active rigs and 145 marketed rigs in the play. Furthermore, we ran a tally on the number of Ready Rigs and found 176 in the Haynesville. Assuming all 176 Ready Rigs are operational and available implies the industry has another 24 rigs to locate, a far easier task than the 80 at first blush. Commentary from several operators indicated that equipment is wearing out at rates much faster than designed, leaving companies scrambling for equipment. High temperatures and aggressive drilling are to blame. Making matters worse, operators are increasingly seeking out specific rigs and crews that have experience and knowhow. We believe this trend will surely continue and expand.


In Pennsylvania, the task of attracting rigs appears even ...