Everything's coming up roses for onshore and offshore drilling contractors.
Operating income of onshore drilling contractors has skyrocketed, rising 1,021% from 1999 to 2000. Revenues were 93% higher. Utilization and day rates in North America have rebounded due to independent producers trying to capitalize on high natural gas prices. Offshore drilling was somewhat more subdued, yet still a cause for celebration, as contractors' total operating income rose 80% and revenues grew 35% from 1999 to 2000. Onshore and offshore hybrid contractors experienced a 62% jump in operating income, and their revenues grew 37% during that same year.
Onshore drillers
UTI Energy Corp. had the biggest percentage change in operating income, zooming up 4,822% from US $556,000 in 1999 to $27,267,000 in 2000, with more than half coming in the fourth quarter. "The record results achieved during the fourth quarter reflect the significantly increased demand for land-based drilling rigs, together with the additional capacity that we have added over the past few years," UTI Chairman Mark Siegel said. The company acquired six rigs in 2000 and is preparing eight more to return to service.
Patterson Energy Inc., which is merging with UTI, added 12 drilling rigs last year and has acquired 21 more since the end of 2000. Patterson Chairman Cloyce Talbott said, "Refurbishment of the company's nonoperable rigs is a constant undertaking whereby we expect to activate an additional six rigs by the end of the second quarter of 2001 and another five rigs by the end of the year."
About 150 land rigs are expected to enter the onshore market in 2001 due to reactivation, but analysts feel that may not be enough to meet demand and that new-builds may be in order. Helmerich and Payne Inc. is the most active builder these days, with 27 land rigs under construction. More drilling contractors soon may follow, as day rates of $15,000 to $20,000 - coupled with 2- to 5-year contracts - can justify replacement of aging rigs.
Offshore rigs
Offshore contractors active in the Gulf of Mexico jackup market also benefited from high gas prices. Ensco International Inc. had the biggest percentage leap - 3,649% - in operating income among the marine drillers. "Over the course of 2001, we expect activity in the Gulf of Mexico will remain strong, and the recovery now under way in international markets will gather momentum," said Chairman Carl Thorne.
Noble Drilling Chairman James Day said his company's US jackup and semisubmersible rigs achieved 100% utilization during the fourth quarter of 2000, up from 71% a year prior. The average day rate for jackups increased from $22,200 to $41,300 during that time period.
In spite of such an upswing, only about 10 new-build jackups are on the drawing board, scheduled for delivery between 2002 and 2005 - only 2.5% of the fleet of 400.
"Deepwater drillers have not yet gotten the bang that the jackup drillers have gotten," said Lewis Kreps, analyst with Frost Securities in Dallas, "but I fully expect rates to go back to where they were previously, particularly in the midwater area, where second-generation semisubmersibles' work lagged in 2000. The fourth-generation and drillship area is pretty much booked."
Not without a contract
Global Marine spent $178 million in 2000 on two new-build drillships. Global Marine Chairman and President Bob Rose said future new-builds will not be constructed without adequate contractual support. "Global Marine will not build new rigs on a speculative basis," he said. "If and when the market demands new rigs, term contracts will be available to support construction."
Chairman James Day reported Noble Drilling is performing engineering on two ultradeepwater conversion projects in preparation for possible future contracts. "As announced previously, we are finalizing our engineering on two of our idle semisubmersibles, the Noble Dave Beard and Noble Clyde Boudreaux, for deepwater applications up to a water depth of 10,000 ft (3,050 m)," he said. "Obviously these conversions will not occur without a commitment from a client." These conversions, which are far more cost-effective than new-builds, will take about 20 months to complete.
Markets will remain strong
Analysts and contract drillers believe the US rig market will remain strong as independent producers continue searching for gas. They also anticipate the resurgence of international markets as the major oil and gas producers loosen their purse strings. "2001 will be for international drillers kind of like 2000 was for domestic drillers. The market is tightening up, and we're going to see the beginning of day rate improvement, which will then carry over with positive momentum into next year," said Matthew Conlan, drilling analyst for ING Barings in Houston, Texas.
Transocean Sedco Forex Inc. President J. Michael Talbert sees signs of a surge in the international offshore market. "Recent discussions with customers have resulted in firm contracts, contract extensions or letters of intent which are expected to become firm contracts on several rigs in the company's fleet and are evidence of the rising spending plans of our global customer base," he said. The potential contracts valued at $67 million include the Transocean Nordic jackup in Norway, the Trident 15 jackup in Thailand, the semisubmersible Sovereign Explorer in the United Kingdom and the semisubmersibles Transocean Amirante and Transocean Richardson in the US Gulf of Mexico.
Sted Garber, president and chief executive officer of Santa Fe International Corp., expects an upturn in onshore drilling activity in Venezuela after a relatively flat year there in 2000. "We anticipate that international spending will show a marked increase in 2001," Garber said. Santa Fe has contracts to build two new jackups and firm plans to build two new deepwater semisubmersibles on spec.
Nabors Industries Inc. Chairman Gene Isenberg noted that in the next few quarters, his company has new contracts for five rigs that will commence in Algeria, along with anticipated higher activity in the Middle East and Latin America.