May 25, 2010

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.

May 18, 2010

Despite all market signs pointing to continued downward pressure on gas prices, they have rebounded nicely in the past 2 weeks, up almost 10%, while oil prices have dropped more than 10%. Meanwhile, the gas rig count has logged its best biweekly gain in months, according to the latest issue of The Land Rig Newsletter’s Biweekly Report, and it isn’t just the unconventionals. Take oilier shales out of the equation, and the unconventional tallies actually fell in the latest comparison. That suggests much of the gas rig gain came in conventional plays. At the same time, there were surprising jumps in the counts of rigs in small—3 rigs or fewer—fleets (+43) and rigs run by private operators (+28).

It’s conceivable the Gulf of Mexico drilling ban resulting from the Deepwater Horizon disaster and consequent impacts on gulf gas production are underpinning higher prices and increased conventional gas drilling by opportunistic small producers.

May 14, 2010

Will the aftermath of the Deepwater Horizon disaster mean more long- and short-term opportunities for onshore drilling? Longer term, the fallout could mean more E&P capital allocation to the onshore unconventional oil plays, owing to the inevitability of an increasing risk/cost component associated with deepwater drilling. Short term, the aftermath could also include unexpected relief, in the near term, for a glutted gas supply side that is already seeing shale wells getting choked back. What spurred that thought was IADC’s call for a “reprieve” for shallow-water GOM drilling from the Obama administration’s ban on all new drilling in the gulf. If the ban lasts until July 1, IADC reckons it will idle 60% of GOM rigs. Onshore unconventional onshore gas drilling growth was already crimping shallow-water GOM gas drilling before the Deepwater Horizon disaster. The gulf ban and subsequent regulatory fallout will only accelerate that trend. It could even provide a window of opportunity to fuel even more unconventional gas drilling to take up the slack as shallow-water GOM gas output slides further under new government strictures.

May 4, 2010

Oil prices continue to hover above $75/bbl while natural gas struggles to stay above $4/Mcf. The divergent price slopes reflect a comparable trend in drilling activity. That was evident in the latest issue of The Land Rig Newsletter’s Biweekly Report, as companies added 29 rigs to the oil count while reducing the gas count by 19. Shale play counts slid by 17 rigs to 477 vs. a 24 unit gain in the prior period. Declines were highest in the Haynesville, Barnett, and Marcellus at 14, 6 and 5, respectively. Chesapeake, EnCana, and Petrohawk took most of the Haynesville hit, splitting a 9-rig decline.

Oilier shale plays rose, but not enough to overcome the overall shale decline. The Eagle Ford, at 49 active rigs, 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.