Posted on 10/07/2015 12:33:04 PM PDT by thackney
Cam Hewell runs Premium Oilfield Technologies, a small company that makes equipment and spare parts for drilling rigs from North Dakota to Texas. Like his rivals, he is trying to withstand the worst oilfield downturn in six years, but they face a vexing obstacle: cannibals.
In a bid to save cash, rig owners are cannibalizing parts such as motors and drill pipe from idled rigs to fix 800 active ones in the U.S. when stuff breaks.
In good times, they would buy new equipment from companies like Hewell's or industry leader National Oilwell Varco Inc when parts fail. Now, they just pick over any of about 1,100 rigs idled by the price crash.
Cannibalization is so widespread in this downturn that services companies and others say even after oil prices recover it will take six months or more to see a significant rebound in drilling and production - a timeframe that will allay fears of a quick uptick in drilling promptly sinking prices again.
NOV has said so many rigs are idled that firms could cannibalize drill pipe for up to a year before placing new orders.
"(Cannibalization) will slow the industry's ability to ramp the rig count back up so it will delay the production response from oil prices," said James West, oilfield services analyst with Evercore ISI.
While there are no official statistics available, cannibalization has been so pervasive in this slump that industry experts say it is possible a majority of the 1,100 rigs that are not working have been scoured for parts.
Land rig utilization is hovering around 60 percent for larger U.S. drilling contractors, according to data from Tulsa, Oklahoma-based Helmerich & Payne Inc, which has a higher utilization rate because it has a fleet of newer rigs.
(Excerpt) Read more at rigzone.com ...
“This may slow down the drilling comeback when prices eventually climb back up.”
On the contrary, the new units that have to be purchased will be the latest state-of-the-art machinery available.
The incentive of rising prices will greatly enhance the margin of profit, therefore the means to purchase the more-advanced machinery.
Unlike consumer goods, goods used to produce other and more valuable goods get amortized fairly quickly, and no doubt, had they been in service at the original locations, these units would have been replaced anyway.
That would be a slower and more expensive first step than taking an existing, functional rig out of storage.
And where the newer state of the art machinery come from?
Who’s building it, and how fast will it come online? What are the lead times?
Leasing rigs instead of buying them would be a much better utilization of resources.
If they want to reuse the old rigs, they will have to replace what was cannibalized.
After equipment has been abandoned and rusting for several years, at some point it will make more sense to buy new rather than to try to bring the old stuff back up to safe operating standards.
Someone has to own it for someone else to be able to lease it.
Cold Stacked is far from the same as abandoned.
Nothing new here. Happens every time.
When you aren’t making enough money to buy grease what else would else would anyone expect?
It’s a very natural and you might say necessary thing to do...
Not ever companies assumes they won’t be back in business with their equipment.
Perform Proper Maintenance on Inactive Rigs
http://www.upstreampumping.com/article/drilling/2015/perform-proper-maintenance-inactive-rigs
If equipment sales are off it's not likely manufacturers are building new state of the art equipment until new orders start coming in. Businesses just don't have inventory anymore
As long as they cannibalize from their same company, it sounds like good business. I’m guessing cannibalizing is the new scary word for reusing. Gotta have a scary word for everything these days.
This article implies that is not happening, or not happening in general.
But this article implies the replacement is never ordered for the cannibalized rig.
As long as they cannibalize from their same company
Otherwise, we would call it stealing....
Assuming the companies have the cash available to do that. I remember working out in Midland for a few weeks back in 90 or 91.
Yes. I don’t mean to suggest they are being dumb. I mean to say it shows how deep the the damage has already reached. This financial state means the recovery will not be quick.
This uses to be called thriftiness. Often related to Yankee ingenuity.
Those rigs were cold stacked intended to return to service, but then they didn’t expect prices and drilling to stay this low this long.
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