The number of U.S. land drilling rigs and their utilization rate are at their highest levels in decades, and that bodes well for the oilfield services sector, says Raymond James.
The firm looked at the "2005 ReedHycalog Rig Census," which found a fleet utilization level of 95%, the highest since 1981. "The dramatic tightening [of the] supply/demand equation for rigs has pushed pricing up to replacement cost levels for the first time in over 20 years," Raymond James said. "Given the limited availability and timing to add new rigs to the market, we think the outlook for activity and pricing should remain very robust over at least the next couple of years, barring a meltdown in commodity prices. As a result, we remain very bullish on the drilling market."
The 52nd annual "ReedHycalog Rig Census" was released in October. Produced by GrantPrideco in cooperation with RigData, the census showed that the U.S. rig fleet expanded to 2,026 from 1,988 in 2004. The net increase came from 211 additions and 173 deletions. The largest gain -- 124 units -- resulted from rigs being brought back into service from inactivity. However, this was offset by 133 rigs that were removed from service. The total number of U.S. rigs meeting the census definition of "active" was 1,920, up from 1,674 in 2004.
According to Raymond James, demand for rigs is strong enough to allow contractors to charge for rig moves in addition to drilling time, which creates higher effective utilization. The U.S. land rig fleet has grown by more than 360 rigs (25%) since the prior cycle peak in 2001, Raymond James noted. "We would estimate that approximately 20-25% of this growth since 2001 has come from new-builds, with the remaining 75-80% being refurbished rigs. This compares to the overall U.S. available rig fleet of 2,026, which only grew by 38 units in 2005 versus 2004 and by 304 rigs (or 18%) since 2001."
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