The collapse in oil prices may foreshadow a different tale in 2015, but the North American top drive manufacturing sector is currently on target to deliver 636 units in 2014, a majority in the 500-ton category.

Hart Energy’s Market Intelligence program surveyed six North American top drive manufacturers at the beginning of the fourth quarter of 2014 to develop a better understanding of how new rig construction is impacting the component side of the business. Currently more than 200 new rigs are under construction in the U.S. with 170 to 175 units destined for the domestic market. The largest drilling contractors continued to announce newbuild contracts during their third-quarter 2014 earnings calls, though the downturn in commodity prices indicates the rig manufacturing industry may be peaking on new construction.

Survey respondents estimated current North American top drive manufacturing capacity at 700 units annually, or nearly two units per day. Capacity utilization in 2014 therefore was more than 90%, though additional manufacturing capacity could be added if greater demand warranted. Chinese drilling equipment manufacturers have also entered the top drive market. The consensus among North American manufacturers is that quality is improving for Chinese units, although imported equipment is beset by challenges surrounding readily available parts and the ability to service units in North America.

Top drive manufacturers build a range of models, including 250- and 350-ton units, which are used on 1,000-hp and 1,200-hp rigs. There are a few 150-ton units manufactured for smaller rigs, while 800-ton and 1,200-ton units are destined for custom-built land rigs with larger masts supporting greater hoist capacity or for offshore rigs. The greatest demand is for units in the 400-ton to 600-ton category, with 500 tons being the most requested model as the contract drilling industry expresses preference for 1,500-hp rigs.

During third-quarter 2014, top drive delivery averaged 14 weeks among the six manufacturers in a range spanning four to 22 weeks.

“We have begun to increase our production rate in order to increase market share, and we can deliver most models in four weeks,” a Canadian manufacturer told Hart Energy surveyors. “In some sizes, I am eight weeks out.”

A Texas-based manufacturer said, “Depending on the order, we can usually deliver in 16 weeks, but on certain units we are now running 22 weeks for delivery due to backlog.”

According to manufacturers, about 430 new top drives are destined for newbuild or upgraded drilling rigs. For the latter, contractors are upgrading older Kelly-drive rigs to adapt to higher spec drilling requirements in tight formation plays where horizontal laterals typically extend 1,372 m (4,500 ft). However, there is a move underway to push laterals out beyond 2,286 m (7,500 ft) when acreage positions permit as operators transition to a model of enhanced completions that entails longer laterals, more stages packed more closely together and greater proppant volume.

Of note, 206 top drive units are destined as replacement units for older, worn-out equipment as heavy usage creates greater wear and tear. Horizontal drilling currently hovers near the 80-percentile range of the weekly U.S. rig count.

The increased demand on top drives is evident in repair and service issues. Manufacturers cited issues with motors, obtaining replacement parts in a timely manner and the downtime associated with repairing active units that experience mechanical issues. Other issues surrounding the top drive market also include problems with gearboxes, seals and the software/electronic controls. Furthermore, a tight rental market makes equipment hard to come by if something happens to an existing unit.