After a significant retooling effort that added nearly 1,000 newbuild rigs over the last five years, onshore drilling contractors recently were distressed to hear that operators will drop incremental rigs by year-end in unconventional plays like the Eagle Ford and Bakken shales.

The culprit is rig efficiency. In other words, rigs are performing so well in complex well environments that operators can now meet program goals with fewer units.

Contractors, ironically, find themselves in the same position as oil and gas operators who became so skilled at coaxing natural gas out of difficult, complex source rock that the industry veered into chronic oversupply.

To date, most reductions in rig count are incremental. Often they amount to about 10% fewer rigs in a given play by a specific operator. An operator like Marathon, who planned to ramp to 20 rigs in the Eagle Ford, will now get by with 18, for example.

Still, those incremental cuts point to lower overall rig count by year-end, likely on the order of 5% or so.

After listening in on second-quarter earnings calls, it became apparent to me that many operators were seeing cycle time for drilling cut in half over the last three years and down as much as 30% in the last year alone. A short list of operators releasing rigs as a result of improvements in drilling efficiency includes Marathon Oil, Continental Resources, EOG Resources, and Chesapeake Energy Corp.

Those rig releases will hit the Bakken and Eagle Ford shales and the Cana Woodford.

But the development actually reflects the maturation of unconventional activity in several shale plays. Unconventional development evolves through a series of stages from discovery and delineation through optimization into the final phase of resource harvest in a multiyear cycle.

Each stage impacts the types of rigs operators employ. For discovery and delineation, operators are open to any rig that meets basic performance specs. This is the science fair part of the effort. Once the acreage is defined and captured, operators begin identifying the sweet spots and working on the well design puzzle. Drilling cycles contract during this phase as operators become more efficient at zeroing in on best practices for a particular play. This stage soon evolves into the resource harvest phase, which yields the greatest returns thanks to repeatability and scale economies. The optimization and resource harvest phases often involve fit-for-purpose rigs or pad drilling units tailored to specific applications, often built new under multiyear term contracts. Reductions in drilling time, however, mirror the decline curves on unconventional oil and gas production. The biggest gains occur early but rapidly diminish. Cutting drilling days from 45 to 20 is one thing. Moving from 20 to 15 is more challenging. Efforts to improve overall well cycle time then transition on the completion side of the equation.

The significance of operator announcements on reducing rig count signals that plays like the Eagle Ford and Bakken are maturing from optimization to resource harvest.

Contractors may view this as too much of a good thing.

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