It will be a long climb back to the top for the rig count. But land drilling rigs like this Helmerich & Payne rig drilling for Statoil will lead the recovery. (Photo by Scott Weeden)

The foundation is in for a massive recovery in the drilling market in 2017 and 2018, according to Marshall Adkins, managing director, Raymond James & Associates.

The deepwater rig market could begin to recover between 2018 and 2020, said James Wicklund, managing director for energy research at Credit Suisse.

Both men were speaking at the 2015 International Association of Drilling Contractors annual meeting Nov. 6, 2015, in San Antonio. They agreed that even though a recovery was likely, 2016 was not going to be a fun year for drilling contractors.

Adkins noted that he has been relatively bearish in his outlook for the industry in the last few years. “Low prices solve low prices. I am more bullish on our business and the outlook a year or two ahead than I’ve been in a long, long time,” he said.

Onshore will recover before offshore, Wicklund emphasized. “Most of the major oil companies were losing money at $100 in their big deepwater and LNG investments. They’re still trying to get that fi xed. Offshore will recover, but it’s going to be later than you thought yesterday and later than you think today. Deepwater is a seven-year cash-cash return cycle. Onshore is a three-year cash cycle, so clearly the U.S. is going to win. If you want rig count to come back, you really want it to come back here first,” he said.

The annual meeting was well attended by drilling contractors who have been through multiple downturns in the industry. It was one of those “been there, done that” scenarios. How to survive the downturn was a major topic of conversation.

Both Adkins and Wicklund emphasized that for the first time in their lifetimes, there is no excess oil capacity.

“In the U.S. we are going to be the driver of global supply for at least the next fi ve years and probably longer,” Adkins said. “We will displace to some degree offshore and international activity.”

Wicklund pointed out that there are 400-plus offshore discoveries that are waiting to be developed. That means that exploration work “is going away dramatically because we’ve got all those discoveries to develop. I didn’t say deep water was dead or it was going away; it is just being delayed. Today we still can’t afford to develop deep water,” he said.

Raymond James’ rig forecast drops the rig count into the 500s in fi rst-quarter 2016. “We’re talking about six more months of pain in my model. Rig activity is down in 2016 but surges in 2017 to 2018. Despite U.S. oil growth in 2017 to 2018, there will be a massive multiyear recovery where land will take share from offshore,” Adkins said.

“We think the recovery will be more bathtub-shaped than V-shaped,” Wicklund added.

Let’s hope the industry comes out of the bathtub squeaky clean and ready to go.

Contact the author, Scott Weeden, at sweeden@hartenergy.com.

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