Oil driller says its high-tech rigs can’t compete with cheap crude

Fuel Fix ^ | January 7, 2015 | Collin Eaton

[thackney]

Even the most technologically advanced drilling rigs are finding less work as oil prices crash.

Oklahoma oil driller Helmerich & Payne expects 40 to 50 of its souped-up drilling machines to come off the market over the next few weeks, after 11 of those models went idle in the past month, it said in an investor presentation Tuesday.

The firm added it has seen spot prices for its so-called FlexRig units fall 10 percent, and some oil companies are dropping out of contracts early. It’s a marked decline for rigs that had emerged in recent years better equipped than old mechanical models to take on dense shale formations, powered by AC top drives and capable of “walking” between drill sites with huge mechanical feet.

Pressure on those rigs shows just how widespread the impact of the oil’s $58-a-barrel slide will be, as Helmerich & Payne’s new models are the cream of the crop in the U.S. land rig market, said Rob Desai, an analyst with Edward Jones.

“H&P is one of the stronger operators,” Desai said. “Other players are probably going to be hit even harder.”

Twenty-six U.S. land rigs stopped working last week, with a dozen of those idled in Texas, according to Baker Hughes, which has reported declines in the U.S. rig count for four straight weeks. Fourteen of last week’s idled rigs were horizontal drillers, which target shale plays.

Praveen Narra, an analyst with Raymond James, says as oil prices have fallen, his firm has revised the number of drilling rigs it expects to come off the market this year from 550 to 850, peak to trough.

“Higher-end rigs will be less affected, but it’s hard to say anyone will be immune,” Narra said.

Analysts with Tudor, Pickering, Holt & Co. wrote Tuesday it’s “worrying that HP has already received 4 early termination notices for long-term contracts,” because multi-year contracts have historically been linked to larger oil companies with healthier balance sheets.

Still, it’s unclear whether the falling rig count will curb U.S. oil output. Oil prices have been cut to less than half their 2014 peak because global oil markets have become oversupplied as U.S. shale oil patches churn out more petroleum.

A few years ago, a falling U.S. rig count would likely denote that oil production will decline over a short period of time – but with new technologies, that’s not guaranteed, analysts say.

Oil drillers have been using multi-well drilling platforms called pads to bore an average of four wells in quick succession. They’re also drilling quicker, at lower cost than in past years. Before oil prices collapsed, demand for high-end rigs was expected to start petering out in two years, Desai said.

“We’ve had all these budget cut announcements but very few companies say they won’t hit their production targets,” Desai said. “If they do keep producing, we’re not really solving the supply issue.”

As an example, Midland, Texas-based Concho Resources on Monday said it would cut its 2015 capital spending plans from $3 billion to $2 billion, though it said it still expects oil production to grow 16 to 20 percent.

[Sequoyah101]

“A few years ago, a falling U.S. rig count would likely denote that oil production will decline over a short period of time – but with new technologies, that’s not guaranteed, analysts say.”

WHAT ANALYSTS?

This is just so much crap. Everybody wants to be on TV as an “expert”.

I got news for all concerned... peak shale will happen. When? Maybe not too long but it will be delayed by this bust.

You made an interesting observation today Thackney... Saudi nor anyone else can replace the “glut” of shale oil production increase from the US this last four or so years. There is about a 1% imbalance.

I’m like you. I’ve given up forecasting. Speculation is a waste of time. I do know this, every ditch has two sides. It depends on how tall you are and how long you can last to get across the ditch and up the other side.

Interesting... while oil was falling again today a notice comes out that money going into oil and gas investments is at a FOUR year high. Somebody is betting wrong. I wonder who?