It’s Field of Dreams for the land drilling industry. But the narrative for drillers is a reverse of the fantastical baseball movie. In this case, customers came first and now await construction of the equipment that will allow the ball game to commence.

The land sector has embarked on another newbuild cycle following a hiatus during 2012 caused by the sudden mid-year drop in commodity prices. Previously, the industry built 250 units in the 2011 to 2012 era as the move to unconventional drilling gained momentum.

The major driver in this cycle centers on the transition to pad drilling, which spread rapidly across the industry in 2013. As it did, it created demand for specialized rigs with top drives, self-mobilization systems, and automation packages integrating digital controls at the surface with advancements in downhole motors and drillbits to build better wellbores consistently and quickly.

The confluence of events and equipment is generating improvements in drilling performance, providing more wells per year for each active rig.

The trend has been transformative, with pad drilling moving from less than 20% of wells in late 2012 to more than two-thirds of wells in early 2014. But for an event to be truly transformative, it must have transformative industry impact, and that is exactly what is happening with the US land fleet.

New higher spec rigs with walking packages are now displacing older electric rigs in the Marcellus and Bakken shales, according to Hart Energy market surveys, or they are finding new demand as horizontal delineation work spreads in the Permian basin. In previous rig building cycles, new rigs were always “in addition to” existing rigs. In this cycle, new rigs are “instead of” existing drilling units.

Considering that only 40% of horizontal drilling occurs with the new higher spec alternating current variable frequency drive (AC-VFD) rigs – roughly 500 units – it is reasonable to expect a replacement cycle that unfolds at a cadence of about 100 rigs annually for the next half decade.

Hart Energy’s market intelligence program surveyed eight rig manufacturing firms and found 116 rigs under construction, split 71% for the domestic market, or 88 rigs, and the remaining 29% for international applications, or 28 units currently.

The February 2014 survey found seven of eight manufacturers reporting strong demand, led by demand from top-tier contractors who account for more than three-fourths of new orders.

Additionally, the move to pad drilling is evident in new rig designs, with new rigs equipped with pad-friendly walking or skidding systems, top drives, and swing-up substructures for two-row pad drilling.

Rig builders anticipate demand for drilling equipment internationally will soon outpace domestic orders as interest grows overseas in horizontal drilling.

Contractors are seeking higher spec units, with most rig orders specifying drawworks of 1,500 hp, though some demand exists for units with 2,000-hp and 3,000-hp drawworks. A majority of units feature modern AC-VFD power systems, though a few are for standard diesel-electric silicon-controlled rectifier rigs.

Manufacturers report the average cost for a new 1,500-hp rig is at US $17.4 million, though the price ranges from $12 million for basic configurations up to $22 million, depending on the rig package. Larger 3,000-hp units top $30 million. Meanwhile, smaller 1,000-hp rigs cost $8 million to $12 million.

Current lead times for delivery range from 90 days to nine months, though the average is closer to six months, with little change over the last half year. In some cases manufacturers have prebuilt standard components, which shortens the time to delivery.

Manufacturers suggest the industry can build 150 rigs annually at current capacity.

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