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First-Mover Advantage Still Key in U.S. Onshore Services Sector

The U.S. onshore oilfield sector was the first to adopt technological advances, an advantage that remains important today for the supply/demand dynamics of domestic operators, Fitch Ratings analysts said Thursday.

Onshore contractors that repositioned fleets early in the unconventional revolution now are enjoying higher utilization rates and dayrates relative to their peers. And the market continues to evolve with no danger of slowing.

Because of shorter well production profiles in U.S. unconventional fields, "operators have heightened their focus on efficiency in recent quarters, resulting in, among other things, pad drilling that has reduced the number of rigs needed."

Fitch didn't consider the biggest U.S. oilfield services operators in its report, which are Schlumberger Ltd., Halliburton Co. and Baker Hughes Inc. However, the Big Three have the research and development -- and the cash -- to spurt out new technology upgrades on a regular basis (see Shale Daily, Jan. 27).

Those smaller, savvy operators are in the game because they have been constantly upgrading existing rigs or commissioning newbuilds that carry top drives, rotary steering systems, multi-directional walking systems and quick assembly structures (see Shale Daily, June 24, 2013).

Compare the utilization and dayrates of Helmerich & Payne (H&P), versus Patterson-UTI (PTEN), Nabors Industries Ltd. and Unit Corp.

H&P commissioned its trademark walker, FlexRig in the late-1990s, while PTEN began to build its APEX rig in the mid-2000s. Nabors recently deployed its PACE-X, while Unit unveiled the BOSS system.

At the end of 2013, H&P's U.S. onshore fleet unitization rate was 84%, and dayrates were more than $28,000. Unitization rates for the other drillers that didn't get that first mover advantage showed lower unitization rate gains by the end of last year: PTEN, 69%; Nabors, 62%; and Unit, 52%. Dayrates also were lower than H&P's.

"Fitch believes that the first-mover drillers will continue to realize stronger metrics, relative to peers, in the near-term given their current asset mix."

Overall rig demand this year could face some tailwinds, however, on elevated onshore exploration and production (E&P) capital spending and more stable market utilization rates, analysts said. Those winds may provide an opportunity for peers to improve their metrics.

Analysts with Raymond James & Associates Inc. last month said U.S. oilfield spending and activity this year would be huge, with E&P cash flows forecast to be 30%-plus higher than in 2013 (see Shale Daily, Feb. 24).

"Fitch believes the stabilizing market utilization rates may be signaling diminishing surface efficiency improvements, as evidenced by generally flat wells per rig data. These slowing surface efficiency trends have been observed in the Eagle Ford, Marcellus, Permian and other shale plays, reportedly resulting in improved re-pricing rates for higher quality assets.

"However, this support may be tempered by continued improvements in output per rig, excess legacy rig capacity, and ongoing speculative rig construction. Drillers seem to be taking a similarly moderated outlook by providing largely flat utilization rate and dayrate guidance for 2014."

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