Need a new drilling rig? With more than 200 rigs under construction at U.S.-based manufacturing operations, another cycle of fleet retooling is well underway. More than 200 new rigs have been added to the domestic fleet over the last couple of years, according to Austin-based DrillingInfo. About 85% of the new rigs currently undergoing manufacture, or about 170 units, are destined domestically, with the remainder, about 30 rigs, headed overseas, mostly to Latin America.
Hart Energy’s Market Intelligence program contacted domestic rig manufacturers in October 2014 to develop a sense of the newbuild market. This appears to be a crucial moment in the current cycle of expansion, assuming oil prices hold. For the first time since new rig construction began more than a decade ago, newer units with upgraded capabilities are displacing legacy units to meet demands for longer laterals and pad drilling.
That has placed an emphasis on 1,500-hp rigs or larger, primarily for the lifting requirements necessary to extend lateral length beyond a mile. New rigs typically entail upgraded fluid systems, high-capacity top drives, greater automation for handling pipe and other worker-unfriendly tasks, and integrated electronics and control systems to add efficiency to the directional drilling process.
Forecasting suggests demand exists for another 200 higher spec rigs over the next two years, led primarily by the accelerating ramp in the Permian Basin, where 550 rigs are active currently, including more than 330 drilling horizontally. Additionally, existing top-tier technology rigs with AC-variable-frequency drive (VFD) power systems are essentially maxed out on utilization, spurring interest in newbuild units as the industry moves into resource harvest mode in tight formation plays, including the Bakken, Eagle Ford and Marcellus shales.
That has led to conversations about when the market for newbuild slots will tighten. At some point in the newbuild cycle, delivery goes from six months to 18 months, and day rates respond accordingly.
Participants in Hart Energy’s Market Intelligence survey program indicate rig rates for newbuild higher spec units run from $24,000 per day to $30,000 per day, depending on configuration.
Rig manufacturers told Hart Energy surveyors that domestic demand was greatest for 1,500-hp AC-VFD units, followed by larger 2,000-hp to 3,000-hp units. Demand for 1,000-hp to 1,400-hp units was listed as a distant third.
“Demand is good for the 1,500-horsepower units and the 2,000-horsepower units,” one large Oklahoma manufacturer said. “We don’t currently get many orders for small units. The 1,500-horsepower units with top drives and walking systems are in highest demand.”
Manufacturers noted a split in interest among customers with domestic orders focusing on AC-VFD powered units while international orders customers seek traditional diesel-electric silicon-controlled rectifier rigs.
“Virtually all larger rigs ordered in the U.S. are AC power, while my foreign orders are almost always diesel electric,” a manager at a large Texas-based rig manufacturing operation told Hart Energy. “I believe it has to do with what is known and understood for local service in those countries.”
Average delivery time for newbuild units averaged four months across survey respondents. A majority of manufacturers said they are ordering components early to thwart future supply chain issues.
Virtually 100% of new rigs above 1,000 hp come equipped with top drives and self-mobilization capability and are destined for multiwell pad drilling programs in horizontal plays. About 50% of smaller independents are ordering skidded rigs vs. walking rigs to save on construction costs, participants in the Hart Energy survey said.
Manufacturers pegged domestic rig building capacity at about 320 units annually, with slightly more than 60% of slots currently filled.
* New rig construction cycle underway
* More than 175 units on order domestically
* Another 30 units on order for overseas
* Domestic newbuild capacity pegged at 320 units
* Demand greatest for 1,500-hp AC-VFD rigs
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