It’s not just rig count that’s plummeting domestically. The surge of newbuild rig construction to supply the specialized units necessary to drill multiple extended-length laterals off a single pad is facing significant retrenchment in 2015 as well.

Rig manufacturers told Hart Energy that orders for newbuilds will be down 80% in 2015 on a year-over-year basis.

Manufacturers were on schedule to deliver more than 220 rigs in 2014, with about three-quarters of new units destined for the domestic market. Total newbuild deliveries should fall to 60 units this year, counting rigs currently in the queue.

Some publicly held land drillers are still building units to meet existing contracts in unconventional plays but have reduced the cadence of newbuilds over former levels. One manufacturer told Hart that his company had three units still under construction but would have them finished in first-half 2015 and was looking for additional work to keep employees occupied.

Interest in new rigs remains strong in Latin America but has dropped precipitously in North America, where contractors are canceling orders, not following up on earlier negotiations to build new drilling equipment or working out terms with manufacturers to exit contracts. Five manufacturers participating in the Hart Energy Market Intelligence survey said the majority of orders destined for the U.S. have been put on hold or suspended.

Meanwhile, interest remains for rigs used in niche applications, with a mid-sized Texas manufacturer pointing to two recent orders for smaller spec slant rigs to directionally drill shallow wells.

“We have sold a couple of shallower slant rigs, but orders for the big newbuilds for the unconventional plays are on definite hold,” the representative told Hart Energy. “There are too many rigs sitting in the yard ready to work.”

As of press time, more than 350 rigs had been idled in the U.S. market, representing a substantial cushion to meet any increase in demand for drilling units.

“We expect demand for rigs to fall another 20% this quarter,” noted a land drilling contractor that assembles its own rigs. In fact, the company has announced layoffs for 2,000 employees while cutting its rig construction pace to two per month, half its former level.

Meanwhile, manufacturers are coming up with special three- to five-year terms for payout to stimulate interest in new equipment domestically or seeking used rigs at auction or sales that can be refurbished and upgraded to keep workers employed. If those efforts fall short, layoffs are on the way.

“We have seen our orders for newbuilds almost stop,” a large Oklahoma manufacturer said. “We are scrambling to buy equipment back from auctions and refurb it and sell for less just to keep our guys working. If prices don’t turn around, we will have to lay off.”

The upside, at least for anyone interested in newbuild equipment, is a rapid contraction in the cycle time to manufacture a new rig. Components such as top drives that had been in short supply last year are now abundant, meaning manufacturers can source rig components quickly, sometimes at discount, and work them into the newbuild process. However, neither labor nor raw steel has decreased in price, so it’s difficult to significantly cut pricing for newbuild rigs at this time. Average turnaround time on a new rig order has fallen from a year in mid-2014 to three or four months currently.

For example, build time on a new 2,000-hp rig is roughly half what it was in 2014.

The terms for getting out of contracts vary on where the rig is in the build cycle. Terms are being set on a case-by-case basis.

For the few units under construction, demand remains highest for 1,500-hp units. Internationally, demand remains high for 2,000-hp units.

Contact the author, Richard Mason, at rmason@hartenergy.com.