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Onshore Drillers Trending Toward Fast-Moving, AC Rigs

Efficiencies have made the onshore rig count not as relevant a data point as it once was, but digging deeper into the data shows what types of rigs are gaining favor and why, according to Tudor, Pickering, Holt & Co. (TPH).

After some recent meetings with clients, the TPH analysts decided to "slice/dice the data differently" to determine what types of rigs were taking over in the unconventional plays and what types of power seemed to be the main draw. The main takeaway: a trend toward alternating current (AC) rigs, as well as fast-moving, walking rigs. "There is an oversupply of rigs, just not near as oversupplied of optimal ones for development."

AC-powered systems offer advantages in terms of improved top-drive motor speed and enhanced torque, compared with direct current, or DC rigs. The simpler AC design, which is lighter and has reduced maintenance requirements, also makes it better suited to automation, which has become the new frontier in drilling.

Tulsa-based contract driller Helmerich & Payne Inc. has been migrating its fleet to AC-powered rigs and touting the benefits of AC-drive in oil and liquids-rich plays (see Shale Daily, Feb. 2, 2012; Nov. 21, 2011).

Walking rigs, are on hydraulic feet between drill sites up to 100 feet apart, allowing multi-pad drilling. As an example, rather than create a four-acre pad for each well, the rig makes it possible to drill four wells from the same pad.

TPH's analysts wondered what is the "right" kind of rig to use in the onshore. There always will be nuances, but ultimately, the generic answer is AC powered rigs, which allow for "control rather than guesswork of drilling parameters such as weight on bit, rotary speed, pipe pressure, etc. and thus a better wellbore), and fast moving. Fast moving is important on a couple of levels -- between locations (need to be able to move in four-five day work shifts or two 24-hour shifts) and while on location ('pad-capable' is overused but more wells per location is the trend)."

The trend toward AC and faster rigs is in the numbers, said the analysts, who pointed to Patterson-UTI Energy Inc. (PTEN), which has more than 300 land drilling rigs operating in North America. PTEN's data offers "evidence in support of this trend, both longer term and in recent past." The company's fleet has "upward activity trends" for AC-powered rigs with walking systems and for older rigs powered through silicon-controlled rectifiers (SCR) with walking systems. TPH earlier this year had forecast fewer SCR and mechanical rigs to be in operation in the onshore (see Shale Daily, Jan. 23).

"Frankly, there aren't enough walking/pad capable rigs today so it makes sense to us that nonoptimal powered rigs (SCR) are still seeing increased demand due to the market being short-walking rigs," said analysts. "Industry-wide data also supports the claim, AC working rig utilization is 80-90%, SCR utilization mid-50%, mechanical rig utilization low 30%, and there are nearly 2,000 idle total rigs (at least 'rigs' in name), per RigData."

There's also anecdotal evidence from the shallow, vertical wells such as those in the legacy Permian Basin, which long have been the domain of the mechanical rigs, said the analysts.

"But recently we've even heard evidence of this stranglehold lessening. For example, we believe an international oil company recently contracted several AC powered rigs to drill vertical Permian wells to delineate its acreage position. Ultimately the acreage will likely be developed horizontally, but even in this appraisal phase, the exploration and production company seems to be going with A/C powered rigs for the quality of the wellbore, as well as the rapid mobility between well locations."

The U.S. rig market is oversupplied, but not for all of the rig classes, they said.

"With the larger drillers even having 50 idle AC rigs, the question of why build more is an obvious one. Setting aside the jaded view that construction will continue in most market conditions (even if at very minimal levels) since the drillers have more internalized the construction process in the past few years (and thus reluctance to completely shut that down), we don't believe there are really any idle 1,500 hp walking/skidding A/C rigs. The idle AC rigs are likely idle due to a combination of either age (thus less 'fast moving') or nonoptimal hp specs, with the lesser reason being drillers trying to manage pricing conditions (idling rigs versus bidding prices lower)."

Contracts still are available, not across the board but anecdotally, said analysts. The "most capable" AC and walking rigs "are still able to get new one-year-plus contracts in the right circumstances."

A private driller that analysts spoke with this month "seemed to struggle to find strong customers/term contracts six months ago and is now signing two-year contracts on the high end (one-year more common). Dayrates for these most capable rigs still seem mid-$20,000s (contracted newbuilds by the public companies corroborate this level), when the pad drilling capabilities are being used. Walking functionality seems to garner a few $1,000s per day on rate."

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