U.S. land drilling held up in the final three months of the year from 3Q2013, better than forecasted, with horizontals topping vertical drilling. In the Gulf of Mexico (GOM), deepwater drilling permits fell in 2013 from a year earlier, but shallow prospects are heating up, according to an analysis by Tudor, Pickering, Holt & Co. (TPH).

The Houston investment firm's oil services analysts pored through data from Baker Hughes Inc. (BHI) RigData to get some insight into North American drilling in the last half of 2013. U.S. land rig numbers in 4Q2013 per BHI indicated that domestic activity was flat from the previous three months, while Rig Data found a gain of 2% -- in both cases better than TPH's forecasted 2% decline.

Regions increasing the most quarter/quarter were the Midcontinent (13 new rigs to average 366); West Texas and New Mexico, where 11 rigs on average ran putting the number at 454; and the Northeast, where nine rigs were added, bringing the average to 150.

The attraction of the West Texas/New Mexico formations should be hot going into 2014, according to analysts, who in November said about 100 total rigs would be added in the domestic onshore, half of them targeting the Permian Basin (see Shale Daily, Nov. 19, 2013). Permian subbasins with the biggest growth were the Midland (16 to average 71) and Delaware horizontals (up 13 to 125).

In the Permian Basin, "horizontal activity continues to make up a larger portion of total rig count," mostly in the Midland and Delaware, said analysts. "We believe the trend continues into 2014," with an incremental 50 horizontal rigs to be added, bringing total horizontal activity in the basin to 274 rigs. If that forecast holds, the Permian would have 53%-plus of total rigs working by the end of 2014 versus 224 (48%) in 4Q2013; 154 (34%) in 4Q2012; and 101 (22%) in 4Q2011.

Appalachia operators also continued to drill new targets, adding nine rigs quarter/quarter to average 135.

"Meanwhile, we believe vertical activity continues to be displaced by horizontal as seen by the decline from 351 vertical rigs (75% of total rigs working) in 4Q2011 to 284 (62%) in 4Q2012 and 230 (49%) in 4Q2013," said the analysts.

Regions where drilling declined the most between the third and fourth quarters of 2013 were East Texas and Louisiana (think natural gas), where five rigs were pulled bringing the average active number to 60, according to data. Five fewer rigs also were running at the end of the year in western targets, where about 48 rigs total are running. Also down was drilling along the Gulf Coast, ex-Texas, with 67 rigs running on average, down four from the third quarter. The gassy Granite Wash had the largest decline, falling 11 rigs on average to 43 by the end of the year.

Drilling rig counts tallied by BHI and RigData both came in higher than TPH had forecast because of more oil drilling "as activity beat us by 200-plus basis points quarter/quarter" and natural gas activity remained inline, analysts said. Based on the well path activity figures, horizontal activity rose 4%-plus from the end of September through December. Vertical drilling over the period declined by 2% and directional rig equipment fell by 3%. Private explorers increased their activity by 4% quarter/quarter, while the "top 30 operators" slightly reduced their rig count by about 1%.

Using RigData information, analysts determined that the companies increasing their activity the most, per rig use, were Anadarko Petroleum Corp. (seven more to 58); Occidental Petroleum Co. (five to 52); SandRidge Energy Inc. (three to 29); Exco Resources Inc. (three to seven); and Continental Resources Inc. (three to 33).

Companies reducing their rig counts the most were Chesapeake Energy Corp. (down 11 to 55); Apache Corp. (minus eight to 67); BHP Billiton Ltd. (minus six to 25); Royal Dutch Shell plc (down five to nine); and Plains Exploration & Production Co. (minus four to four), which now is merged with Freeport McMoRan Copper & Gold Inc.

Private operators, which represent about 44% of fourth quarter activity, increased their rig counts by 4% from the third quarter, twice as much as overall activity, TPH said.

"Regionally, the most notable quarter/quarter increases were in the Midcontinent," which added on average 18 rigs to total 189; the Permian (plus nine to 200); and the Rockies (seven rigs to 110). For the privates, there here was "not much in the way of declines as the Western region was the most significant and only down four average rigs to 15."

In the last four years, the final two weeks of December typically have been a slow time for drilling in the Lower 48 states, with on average about 10 rigs dropped, followed by five rigs added in the first two weeks of January, TPH said.

"During the final two weeks of this December, we saw the BHI rig count decline by 27 rigs (RigData minus 59). This compares to a 37 rig decline (RigData minus 86) in the final two weeks of December 2012 followed by a one rig decline in the first two weeks of January 2013 (RigData plus 16). Currently, we expect a quick rebound as we head into January."

Activity in the deepwater GOM was relatively slow in the final three months of 2013 from 3Q2013, with one floater added to average 35 total, and three jackups dropped to average about 30. Deepwater permitting declined slightly quarter/quarter with 15 new deepwater wells approved versus 17 in 3Q2013, TPH said.

"On a full-year basis, 2013 lagged 2012 as 56 total deepwater permits were issued in 2013 versus 112 in 2012." However, shallow water permitting increased slightly in the final quarter as 18 new wells were approved compared to 13 in 3Q2013. "For the entire year, shallow water permitting finished in-line versus the prior year as 70 were approved in 2013 versus 67 in 2012," analysts said.

Canadian rig activity in 4Q2013 rose 3% from the same period of 2012, slightly beating analyst forecasts, pegged at a 2% increase. "Per BHI, there was a fairly large shift away from oil-directed drilling activity as 4Q2013 finished with an average oil/gas split of 58% oil and 42% gas versus 65% oil / 35% gas in 3Q2013."