This year will be the opposite of 2001 - a little drilling in the first half and more in the second half.

Low natural gas prices have taken their toll in North America. In May 2001, Schlumberger Reed-Hycalog's US Rig Census found 93% utilization, "a level not seen since the early 1980s." But by late November, the US rig count was only 986, down 78 rigs from the year before. Canadian rig utilization was only 48%, down from 74% a year earlier, according to the Canadian Association of Oilwell Drilling Contractors.
Only 59% of the fleet is being utilized in the Gulf of Mexico, and jackup day rates fell by 20% to 30% during the third quarter of 2001. According to ODS-Petrodata Group, 47 jackup rigs have been stacked in shallow Gulf of Mexico waters due to low gas prices. Consequently, several drilling contractors are sending their idle Gulf rigs on voyages to distant lands. Global Marine sent one Gulf of Mexico rig to West Africa and two to Trinidad in the third quarter of 2001. In September, two Transocean Sedco Forex jackup rigs from the Gulf of Mexico were sent to India, and four of Rowan's Gorilla-class rigs are expected to leave the Gulf in 2002.
Shallowwater Gulf of Mexico day rates have fallen from US $43,000 to $32,000, and the spot market day rate for jackups is down to less than $20,000, said Robert Long, Transocean Sedco Forex executive vice president and chief financial officer.
Deepwater drilling projects are faring better. The US Minerals Management Service reported the number of deepwater wells drilled in the 2001 fiscal year hit a record high of 277, up 22.5% from a year earlier. All 24 deepwater drillships and 50 semisubmersibles in the 5,000-ft (1,525-m) category are in use, and demand for these rigs will likely exceed supply by 16 units in 2002, according to Norland Consultants.
Consolidation continues
Transocean Sedco Forex merged with R&B Falcon Jan. 31, 2001, creating the largest drilling contractor. Then on Nov. 21, Global Marine and Santa Fe International completed their "merger of equals" to form the second largest drilling company. Both Global Marine and Santa Fe had nearly doubled their profits for the quarter prior to the merger, and Global Marine's day rates had reached the highest level in the company's history.
"Mergers and acquisitions in the drilling contracting industry have not let up, and have continued for more than a decade," said John Deane, Schlumberger's vice president of drilling technologies. "There were almost 700 rig owners back in 1987, and we're down to less than 200 now." In 1990, 39 publicly traded offshore drilling contractors existed in the United States, and this decreased to 30 in 1994, 24 in 1996 and 11 in 2001. Deane reported 22% of those participating in the 2001 rig census said they are still seeking merger opportunities.
Operator consolidation has had an additional effect on drilling activity. Larry Dickerson, president and chief operating officer of Diamond Offshore, asked, "Do two plus two equal four or three prospects when majors merge? I think the customers are driving toward three," he told attendees at an American Association of Drilling Engineers luncheon meeting in Houston, Texas.
Forecasts and predictions
While Robert Palmer, chairman, president and chief executive of Rowan, calls today's situation a "collapse," most drilling contractors are predicting a short-lived downturn. Rowan predicts reduced activity in the near-term in the Gulf of Mexico, followed by moderate improvement in early 2002. The company expects demand for harsh-environment equipment in eastern Canada and the North Sea to improve in 2002 and 2003.
GlobalSantaFe President and Chief Executive Officer Sted Garber is "cautiously optimistic," predicting that day rates and utilization will continue to increase slightly for marine and land fleets. Analyst Mangus Fyhr of Jefferies & Co. predicts the offshore rig count is close to bottoming, while the land rig count could still decline by another 150 to 200 rigs.
Bob Rose, chairman of GlobalSantaFe, said he still believes "the Gulf of Mexico natural gas market will rebound sharply, but the weakening economy, exacerbated by the tragic events of Sept. 11, will push the inflection point of that recovery period further into the future."
J. Michael Talbert, president and chief executive officer of Transocean Sedco Forex, said, "Improvement in US natural gas prices, together with the well-documented decline in US natural gas production levels, will be critical drivers of a recovery in the Gulf of Mexico shallowwater drilling market. While heightened economic uncertainty diminishes some business prospects in the near term, we remain confident of the long-term fundamentals for our business, particularly in the deepwater arena."
Pamela Pierce, president of Mirant, is so bullish on the US gas market that her power company is entering the exploration and production side of the gas business. "It looks to me like $3 gas is probably a good number. It's probably the floor with the upside extremely volatile due to supply and demand." After a thorough study of market indicators, Pierce concluded, "We think the gas business is a good business to be in."
Petro-Canada spokesman Chris Dawson agreed with that market assessment. "There is still going to be demand just based on the fundamentals of declining reserves in the ground and increases in consumption over time." Several reputable studies project gas demand in the United States will increase from 23 Tcf in 2000 to 30 Tcf by 2010. Canada hopes to be a major supplier of that increased volume, so Canadian companies are moving ahead with winter drilling plans. "It looks like the number of wells that will be drilled this year will be similar to what was drilled last year," said Murray Roth, vice president of finance for Akita Drilling Ltd.
Paul Kelly, senior vice president at Rowan, summed up the outlook nicely when he told the Houston Forum "a multiyear period of energy infrastructure investment, profitable natural gas prices and stable oil prices is under way and will be clearer once we come out of this trough."

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