The rig count in the U.S. Gulf of Mexico (GOM) climbed 25% in the first three months from a year ago, led by drillers looking for oil, FBR Capital Markets analysts said Friday. Gas drilling offshore has been "muted," the team said.
The increased drilling activity, based on numbers from Baker Hughes Inc., was the largest sequential percentage gain in a decade, wrote analysts Robert MacKenzie, Doug Garber and Christopher Breaux.
"In 1Q2010, the GOM oil rig count soared, and the gas GOM rig count stabilized," said the trio. "This was a meaningful improvement from 4Q2009 where the sequential increase in the oil rig count was masked by the decrease in the gas rig count." Drilling offshore in the early months of this year "compares favorably to 4Q2009's sequential GOM rig count increase of just 4%, as the oil rig count increase was mostly offset by the gas rig count decrease."
The average oil rig count in the GOM doubled in the first quarter to 21 rigs from 11 rigs and reached its highest level since 2005, said MacKenzie and his colleagues. "Since the deepwater rig count only increased by an average of one unit in 1Q2010, we presume that the increase is being driven by shelf oil activity, which is likely reentry drilling that requires limited additional infrastructure. Furthermore, the magnitude of the increase in reentry work is likely not fully captured in the increasing rig count since many wells can be supported from existing platforms."
GOM shelf gas activity "has been muted as expected," said the analysts.
"The average GOM gas rig count started to stabilize in 1Q2010, decreasing slightly to 22 from 23 in 4Q2009. This rate of decrease is significantly less than the previous quarter's sequential decrease of six rigs from an average of 29 rigs to 23 in 4Q2009. The U.S. GOM shelf is the high-cost marginal production region, and drilling economics are not favorable in that region given the current price of natural gas.
"We continue to believe that GOM gas drilling will mostly be phased out as lower cost shale production displaces shelf gas," said the trio.
The increase in the offshore oil rig count began last October, "several months after the land oil rig count that started to increase in June 2009. We believe this is because smaller, independent land operators were quicker to adjust their spending in relation to lower costs and higher oil prices than were larger offshore operators."
The activity in the offshore may be higher than even the numbers indicate, said the FBR team.
"We believe the mobile offshore rig count increase understates the increase in service activity, since some shelf oil work can be done rigless working over older wells," and "we believe the magnitude of the jump indicates other nondrilling rig projects were likely undertaken, too."
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