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Disunion in day rates between high and low spec land rigs set to continue

Logo: Disunion in day rates between high and low spec land rigs set to continue

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Market Briefing
Published: November 2014
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Andrew Meyers, Douglas-Westwood Houston, writes:

In recent years in North America, unconventional drilling and the associated preferred rig attributes have created a divergence in day rates. Features such as AC power and ‘walking’ capability have created a delta for these high-spec rigs over traditional DC rigs of nearly USD 8,000 a day. This can be attributed to pad drilling in unconventional formations.

Pad drilling by Douglas Westwood’s definition requires that multiple wells be drilled on a single pad and during a single visit by a rig. In the first quarter of 2010, approximately 25% of wells in the nine most predominate US unconventional basins were drilled from a pad.

By the end of the 3Q13, nearly 60% of the wells were drilled from a pad in those same nine basins. While this sharp growth inflated the appetite for rig walking capabilities, operators also desired the control provided by AC power for drilling in tight unconventional formations.

This new demand caused a deviation between AC and DC rig day rates and contractors began to modify their rig portfolios. Even as the active rig count dropped in 2010 to nearly half of the 2008 highs, many of the large North American drilling contractors continued to build two to three high-spec rigs a month despite the fact that some of their existing fleet was not under contract.

Rig contractors continue to address this imbalance today by aggressively planning to build up to four new land rigs per month in 2015, and upgrade their existing fleet where possible. If the division of desirable land rigs attributes infiltrates other international markets, the disunion in day rates between high and low spec land rigs could be sustainable for the foreseeable future as rig builders attempt to catch up.

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