Driven by sustained intensity in the U.S. onshore and a slow recovery in the Gulf of Mexico (GOM), the domestic rig count should average 1,850 in 2011, which would be 20% higher than in 2010, Baker Hughes Inc. executives said last week. In Canada the rig count is expected to hit 400 this year, which would be 15% higher year/year (y/y), CEO Chad Deaton said during a conference call with energy analysts.

The Houston-based oilfield services provider posted better-than-expected 2Q2011 earnings, with net profits of $338 million (77 cents/share) up from $93 million (23 cents) a year earlier. Excluding charges the company earned 93 cents/share, which was 2 cents higher than average Wall Street forecasts. Revenue in the latest period jumped 41% to $4.74 billion. North American revenue in the latest quarter jumped 37% year/year (y/y) and was up 1% sequentially.

North America revenue jumped 37% y/y and 1% sequentially to total $2.36 billion in the latest period. Profit margins were up 19% from the year-ago period. Canada’s spring ice break-up, which leads to a slowdown in drilling activity, “provided some headwinds” but “fundamentals are strong” across North America, said Deaton.

“In the Gulf of Mexico the deepwater remains a work in progress for all of us,” Deaton said of the industry. “There is a lighter amount of permits than we had hoped for but like our customers we continue to be committed to this very important basin…As operators get back to work in the Gulf, it will be slow to recover…It all starts with permits and permitting.”

COO Martin Craighead noted that the GOM will continue to see a ramp-up over the next two years. Deepwater drilling takes more planning, he explained. “The work is being done to prepare for it and preparing for this stuff at a much higher standard is under way…We’re optimistic and confident that it will follow through…”

In North America’s onshore, there is a “widening disconnect” between the number of rigs drilling and the services needed to complete them, said the COO. Because of the disconnect, it’s difficult to forecast how many rigs are needed, he explained.

“The near-term supply is not only in pressure pumping” but other drilling services, Craighead explained. This “service intensity per rig is driven by three forces,” which are rigs that are more efficient, horizontal drilling techniques that continue to improve, and hydraulic fracturing (fracturing) techniques that continue to be optimized. “Since the start of 2010 we’ve seen a 30% increase in the number of stages fracked per well,” he said. “And we’ve seen a 40% increase in frack technology. This dynamic change has led to a widening disconnect between the rig count and revenue per growth…Today we’re generating revenue beyond what the rig count would historically suggest by pushing new technologies…and better well construction techniques have led to longer laterals…”

Nabors Industries Ltd.’s CEO said last week the “pace” of new fracking equipment deliveries to North America’s onshore resource plays is back on track after a frustrating three-month delay caused by a wet spring in the Marcellus Shale, harsh conditions in North Dakota and delayed equipment deliveries.

The oilfield services operator, which owns and operates 551 land drilling rigs and 748 land workover and well-servicing rigs in North America, reported quarterly earnings that were well above year-ago levels except for the pressure pumping business, where earnings were flat. Net income from continuing operations was $68.1 million (23 cents/share), compared with $44 million (15 cents) in 2Q2010 and $84.3 million (29 cents) in 1Q2011. Adjusted operating revenues totaled $174.8 million in the latest period, from $126.8 million a year ago and $191.0 million in the first quarter of 2011.

Nabors’ largest sequential improvement from the first quarter was in its Lower 48 land drilling business, “the result of a 6.3-rig increase in activity and an $807/day increase in average margins, which included $395/day in early termination payments,” the CEO said. “This unit secured another seven term contracts for new rigs during the quarter, bringing the total newbuild backlog to 36, including eight that are not yet committed to term contracts. We have already deployed eight during the first two quarters and expect to deploy another 13 before the end of the year, with the remaining 23 rigs expected to deploy throughout 2012. The outlook for this segment remains very promising, with significant interest in additional new and upgraded existing rigs continuing.”

The flat year/year earnings within the pressure pumping business reflected “lost income and costs associated with delayed equipment deliveries and adverse weather,” Isenberg told analysts.

“A wet spring in the Marcellus Shale and the combination of late [ice] breakup and flooding in North Dakota impacted this business disproportionately given that these regions constitute nearly half of its current horsepower. We received the first spread of incremental frack equipment in mid-May and recently received two more as the pace of new frack equipment deliveries is back on track, although now approximately three months later than originally planned. We expect to have the remaining six spreads in service by the end of the first quarter of 2012, bringing our hydraulic fracturing fleet to a total of 854,000 hp.”

Nabors now has 10 term contracts in place in the Marcellus that cover eight currently operating frack spreads and two that are yet to be delivered, Isenberg said.

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