Despite the mixed signals in the economy, U.S.-based land and offshore drilling contractors are reporting sequential gains for services and rigs over the first part of the year, especially by aggressive independents on the hunt for natural gas. And if gas prices remain high, most of the contractors expect the domestic rig count to rise both onshore and offshore through the rest of 2003.

Nabors Industries Ltd.’s second quarter gains came mostly from its Lower 48 land drilling unit, where the company experienced a “progressively higher rig count,” said CEO Gene Isenberg. And except for Alaska, which posted an expected loss as some of the largest producers cut back, Isenberg said Nabors expects “sequential quarterly improvement for the foreseeable future.”

Canada, he said, has been “rapidly emerging from its second quarter seasonal trough with a much higher rig count and stronger rates,” and in its Lower 48 land drilling business, “we expect steady improvement” if gas prices remain high. “The longer-term outlook for this unit is particularly good, given the long-term nature of the recent platform rig deployments, continuing strong bid flow and the number of strategic opportunities on the horizon. Our U.S. offshore business anticipates further increments, the most visible component being recent and future rig deployments on deepwater projects.”

Nabors’ well servicing business in the United States is outperforming expectations, he said. Even though the Alaskan drilling unit was down, Nabors was “encouraged by the influx of new independent operators in this market who are aggressively pursuing exploratory and development projects, reinforcing our expectation of a strong winter season,” said Isenberg.

“We remain convinced that the North American gas markets will require higher levels of drilling for an extended period to meet the supply challenges,” he said. “Our Canadian business appears to be heading for a record third quarter and a record year, and that market has been a reliable predictor of U.S. Lower 48 activity. Our view of an enduring North America gas-directed cycle and strong growth characteristics in our international business reinforce our conviction that the current upward trend in our results is sustainable for an extended period.”

Dennis Smith, Nabors’ director of corporate development, added that the company expects to see a “good seven to 10-year run” in U.S. land drilling because of tight natural gas supplies. Smith noted that industrywide, nearly 980 U.S. land rigs are operating, and it is “likely we’ll see 1,000 before the end of the year.”

Midland, TX-based Key Energy Services Inc.’s CEO Francis D. John also has been “pleased at the strength in activity levels, both in our U.S. and international operations” during the quarter. “Based on current activity and anticipated increases in demand for our services, we expect to see continued improvement in our operating results over the next several quarters.” Key has operations in all major onshore producing regions of the United States, as well as internationally.

John said the company “continues to believe that industry demand for drilling and production services, particularly in the natural gas producing regions, will improve over the next several quarters. With accelerating decline curves in most U.S. natural gas wells and anticipated increases in industrial demand, we believe that natural gas prices should remain at levels attractive for both increased exploration and development by our customers.”

Another domestic driller, Patterson-UTI Energy Inc., is seeing a higher rig demand for its land-based rigs in the last quarter. Headquartered in Snyder, TX, the onshore drilling contractor operates primarily in Texas, New Mexico, Oklahoma, Utah, Louisiana, Mississippi and western Canada.

“Our average rig count increased sequentially from the first quarter, with drilling activity in the U.S. more than sufficient to compensate for the decline in drilling activity in Canada due to spring breakup,” said Cloyce A. Talbott, Patterson-UTI’s CEO. “We had 195 average rigs operating in the quarter, including five in Canada, compared to 176 average rigs, including 15 in Canada, for the prior quarter. Thus far in the third quarter we have averaged 194 rigs operating, including 11 rigs in Canada.”

However, not every company with North American operations is as optimistic. Dallas-based ENSCO International Inc., for instance, reported that its Gulf of Mexico jackup rig demand remained flat in the second quarter, as some of its rigs moved to international waters. “We are beginning to see some improvement in the Gulf of Mexico jackup day rates, although this primarily applies to the larger, more capable jackup rigs,” said CEO Carl Thorne. He also noted that several international markets are sluggish, while the Asia Pacific region “remains firm, in terms of both utilization and day rates,” with a higher level of bid activity.

“Given expected market softness in the North Sea over the remainder of 2003, muted improvement in Gulf of Mexico day rates, and scheduled shipyard downtime, we expect third quarter 2003 income from continuing operations to be little changed,” Thorne said. However, ENSCO could see increases in its rig utilization rate later this year, “as our customers attempt to overcome natural gas production declines and meet the demand for natural gas during the winter withdrawal season. We believe that continued strong commodity prices will provide our customers with cash flow for increased investment in land drilling activities.”

Houston-based services company Grant Prideco Inc. also reported a “continuing weak demand for drill pipe” and tubular products for the quarter. “While customer inventories have continued to decline in both categories, purchasing decisions are being delayed in light of mixed signals regarding future spending levels by exploration and production operators,” said CEO Michael McShane. However, he said, “we are encouraged by a recent build in backlog at our drilling and marine products divisions. Combined with seasonal increases at ReedHycalog and recent improvement in deep drilling activity, we expect modestly improving results for the balance of the year.”

Meanwhile, Helmerich & Payne Inc.’s CEO said there “remains a disconnect between high energy prices and the pace of recovery in the oil patch.” Still, Hans Helmerich, whose company operates in Oklahoma, Texas, Wyoming and Louisiana, and offshore in the Gulf of Mexico and California, believes that “while slow to develop, we still believe the long-term challenges, particularly in regard to natural gas, suggest a prolonged upward trend in oilfield activity.”

Helmerich said that “some improvements are occurring in the company’s international markets, but our offshore platform fleet continues to cope with weak activity levels. We would expect these markets to move up as customers continue to raise their spending budgets.”

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.