Global rig fleet grows, both onshore and offshore

United States rig owners continued adding to their fleets in 2014 and were able to put more rigs to work. According to the 61st Annual NOV Rig Census, the U.S. available fleet made a significant jump over the past year, and activity levels seemed to support this increase.

When rig counts were tallied for the census in the early summer of 2014, commodity prices were strong enough to fuel additional drilling momentum. The gap between available and active rigs shrank, and showed an overall strengthening in the U.S. market. The Canadian drilling environment also showed growth in availability, as newbuilds and reactivations were added to the fleet. Canada experienced a turnaround in activity levels, regaining most of the losses seen over the past two years.

Worldwide statistics were also encouraging for 2014. The global offshore mobile fleet continued to make notable gains in the number of available rigs added to the fleet. Again this year, a large number of newly manufactured units came online, with most having standing contracts to drill. Activity levels rose, as well, and kept pace with available units, causing utilization for the offshore mobile fleet to be relatively unchanged. With the exception of Asia (including China), international utilization of rigs rose in most primary areas.

CENSUS HIGHLIGHTS

Key statistics from the 2014 census include the following:

• The U.S. fleet had an overall increase of 199 rigs, pushing the total available count up about 7% to 3,254. This net increase is the result of 387 rig additions and 188 rig deletions, Fig. 1.
• The number of U.S. rigs counted as newly manufactured rose in 2014, totaling 187 units.
• The number of rigs that were retired or removed from service this year was 177, a slight decrease.
• U.S. rigs meeting the census definition of “active” rose to 2,269, up about 10%.
• Utilization of the U.S. fleet (combined land and offshore) grew three percentage points and now stands at 70%, Fig. 2.
• There were 319 U.S. rig owners counted in 2014, compared with 313 last year.
• Drilling contractors own 85% of all U.S. drilling rigs, a one-percentage-point decrease this year, with operators owning the remaining 15%.
• The Canadian available rig fleet rose to 796 units, up 2% from last year.
• Canadian rig activity jumped 22%, with active units numbering 352 in 2014.
• Utilization for Canada rebounded to 44%, compared with 37% last year.
• The global offshore mobile fleet’s available count grew 5% this year, coming in at 890 units.
• The active count for the global offshore mobile fleet grew 4%, and reached 725.
• Utilization of the global offshore mobile fleet is now 81%, just slightly lower than 2013’s level.
• All international regions, with the exception of Asia (including China), showed increases in rig utilization over the past year.
• Every U.S. region had increases in available rigs, with the exception of the Gulf Coast, which was essentially flat.
• The availability of crews is the number-one concern for drilling contractors this year.

Fig. 1. U.S. available vs. active rigs, 1955-2014.

Fig. 2. U.S. available rigs vs. utilization, 1955-2014.

U.S. ATTRITION DROPS

Every year, some rigs are considered “unavailable,” based on census rules, and are “retired” from the U.S. fleet. Older rigs with outdated equipment and technology, which have been sitting idle for three or more years, are no longer considered available. Units that need a significant capital expenditure, or a considerable time investment, are also not counted in the census.

Accidents that damage rigs beyond repair also put rigs out of commission. When units are transferred to other countries for more profitable ventures, these rigs are taken out of the U.S. census and counted in other international tallies. Each of these cases is counted as a reduction to the U.S. fleet. Total deletions this year numbered 188 rigs, a 9% drop since last year’s 207-unit decline. This was the lowest number of rig deletions since 2008, Table 1.

The largest number of rigs deleted continues to be in the “Removed from Service” category. This has remained stable over the past year, with a net drop of just five units, to 177. This is quite a different story from the reduction seen in 2013, when the number declined by about 50%. This category includes any units that require a large capital expenditure, rigs auctioned for parts or cannibalized to keep other rigs running, or units that have been stacked for three or more years.

Note that some of these rigs may re-enter the census at a later date, if drilling conditions warrant, but have to be disqualified presently, to ensure an accurate representation of the current available fleet. If any of these rigs are re-introduced to the fleet, they are typically categorized under the “Brought Back Into Service” portion of the census, in the “Additions” part of this article. There is always a need for some units to be refurbished or reactivated, if economic conditions improve.

Depending on worldwide market conditions, companies move their rigs into, and out of, the U.S., and we attempt to follow these rig movements on a year-to-year basis. In this year’s count, just six rigs moved out of the U.S., quite a few less than the 22 units that were exported in 2013. These units are classified in the “Moved out of the Country” category. Rig movement into the U.S. is covered in the section below.

Rig accidents, where equipment was damaged beyond repair, put some units in the final deletions category as “Destroyed.” Five rigs were reported to have sustained significant harm in the 2014 census and were classified in this category. Specific information was not provided for all of them, but at least two rigs were known to have burned, due to blowouts. This compares to three rigs that were counted as destroyed in the 2013 census.

U.S. RIG ADDITIONS SWELL

After rig building slowed in 2013, rig expansion programs accelerated in 2014, producing a significant number of new units. Refurbishments were also extremely prolific this year. As market conditions have improved, reactivations have been a cost-effective way to bring units online quickly. Several rigs were also brought into the U.S. from other countries. Census figures show that 387 rigs were added to the fleet over the last year, up 51% from the previous year. These additions considerably outnumbered the 188 deletions to the fleet, Table 1.

United States newbuilds rose in 2014 after having experienced a downturn in 2013. There still appear to be a plentiful supply of innovative rigs being produced, bringing down the average fleet age. Over the past decade, 1,927 brand-new units have been introduced into the U.S. fleet, indicating that more than 60% are performing at a higher level of cost and efficiency. Of those new units, 187 were added during this year’s census, compared with 147 added in 2013.

The number of U.S. rigs that were “Brought Back into Service” spiked in 2014. This year’s number came in at 193, more than double the 97 units reactivated in 2013. Each of the rigs that were reintroduced had been counted previously in a prior census, but had been out of commission. Many of these 193 reactivations have been refurbished and are being counted again as part of the U.S. available fleet.

Six rigs that “Moved into the Country” during the past year are also counted in the census. This is down from the nine rigs that moved into the U.S. during 2013. With six units moving in and six moving out, the net import/export count was stable. In recent years, more rigs typically have moved out of the U.S. than moved in, so it’s noteworthy that this was not the case in 2014. Differences in rig movements are often minor, so it can be difficult to tell when trends are reversing. However, strict U.S. drilling regulations have been burdensome, and rig owners have been drawn, justifiably, to other markets for many years.

Lastly, just one rig “Assembled from Parts” was added to the fleet in 2014. Although there are probably more units that could be classified in this category, it is becoming increasingly difficult to quantify, based on the data that are gathered. It also can be hard to differentiate between refurbishments and new assemblies, especially when rigs have changed ownership and are renamed. For these reasons, beginning in 2015, the “Assembled from Parts” category will be absorbed into the “Brought Back into Service” category.

Total rig additions numbered 387, while deletions totaled 188 units. The net change in the fleet over the past year was a 199-unit gain, up about 7%. This is compared with a fleet increase of just 2% in 2013, Fig. 3.

Fig. 3. U.S. change in available rigs, 1956-2014.

CANADIAN FLEET REBOUNDS

The Canadian available fleet has made another significant gain in rigs during 2014. This is the second year of increase after several years of declining counts. Rigs retired from service matched fairly closely in number to those reactivated, but newly manufactured rigs helped gains overcome losses to achieve a further increase.

Rigs “Removed from Service” continues to be the primary cause of Canadian fleet attrition. This includes rigs idle for greater than three years, or those requiring a large capital outlay. Data gathered about these units indicated that 38 fell into this category and were, therefore, dropped from the census available count. This is less than the 52 rigs removed in 2013. Eleven rigs also were taken out of the census in 2014, due to being “Moved out of the Country.” This was a noteworthy decline, compared with the 21 rigs that were relocated last year. Most of these rigs were headed to the U.S. market, but several were bound for Latin America. No Canadian units were reported as “Destroyed” over the past year. The sum of all deletions totaled 49 units in 2014.

The number of “Newly Manufactured” rigs entering the Canadian fleet has declined this year after a resurgence in 2013. For 2014, the number of brand-new rigs totaled 24. This was a decrease from the 64 units that were built from scratch in 2013. Rigs “Brought Back into Service” have been stable for the past five years, with 32 being the number reactivated for 2014. Rigs “Moved into the Country” for Canada doubled over the past year, as 12 were counted as being imported. This makes a net addition of one rig, when looking at the import/export balance. No units were indicated as “Assembled from Parts.” Total rig additions came to 68 units, overall, for Canada. Although this was 35 units less than the previous year, additions still outnumbered deletions, causing the available count to rise by 2% or 796 rigs, Table 2.

GLOBAL OFFSHORE MOBILE FLEET EXPANDS

Rig-building accelerated in the offshore sector this year and was the dominant reason that units were added to the fleet. Overall attrition was slightly higher than last year, but did little to offset the gains, due to the newly manufactured units.

Reductions to the fleet this year included 22 rigs that were “Removed from Service,” some of which are undergoing conversions to non-drilling. This compares to 17 rigs that were retired in the previous census. Three offshore units were reported as “Destroyed,” due to accidents, Table 3. If an offshore rig has not worked for more than five years, and does not have upcoming contracts, it is removed from the census until this status changes. This is to prevent rigs, which cannot be reactivated quickly, from being counted as available. Although the census is able to track the majority of platform and inland barge rigs in the U.S., the global mobile offshore statistics do not reflect these units, since worldwide statistics are particularly hard to obtain.

Another 63 brand-new rigs came online and entered the census for the first time. The rate of increase in the fleet has been especially noteworthy for the past six years, with 40 or more rigs added each year. Another 81 units are scheduled for worldwide delivery by the middle of 2015, according to IHS. Even though all of these rigs will not meet that schedule, another prolific year of fleet additions is likely, possibly surpassing the number of new units reported in the 2014 census. In addition to these newbuilds, two offshore rigs also were “Brought Back into Service.” No units were added after being “Assembled from Parts.”

The available count for the global offshore mobile fleet now stands at 890 units, a net increase of 40 rigs, and a 5% increase from last year. The worldwide offshore mobile fleet is widely distributed, with the Middle East in the lead, followed by Southeast Asia, and the U.S., Fig. 4. Fleet composition by specific rig type is shown in Fig. 5.

Fig. 4. 2014 Global offshore mobile fleet, by region.

Fig. 5. Makeup of the global offshore mobile fleet.

U.S. ACTIVITY SURGES

After showing a lagging year in 2013, U.S. drilling activity picked up considerably this year, numbering 2,269 for 2014, versus 2,055 last year. This resulted in a jump of about 10%, and a rebound to the 2012 level. Active rigs rose to a greater extent than available rigs this year, shrinking the gap between the two and indicating stronger market conditions.

The methodology used to count active rigs for the NOV census is different from other published rig counts. This census counts a rig as active, if it has “turned to the right” at any time during a defined 45-day period in the late spring, this year between May 9 and June 22. Other active counts typically report shorter windows of time, such as a week. When a longer period is used to monitor activity, a larger pool of working rigs will be counted, and the count will be higher. This is a better indication of activity, since fewer active rigs will be left out of the count, due to relocations.

Rig utilization, the ratio of active to available rigs, is a statistic that gives an indication of the demand/supply balance. Gains in utilization can show increasing economic strength in the industry. This year, U.S. utilization has improved and is now 70%, rising three percentage points since 2013. Although this year’s utilization is still below the historical average of 74%, it has reached the 70% mark, which typically indicates a healthier drilling market.

There were 985 available U.S. rigs that were inactive during this year’s 45-day census period. These units may have been idle as they waited for contracts or were being moved to their next drilling location. These viable, but inactive rigs, were classified according to the length of time that they have been idle. Rigs stacked less than one year numbered 529; one to two years, 338; and two to three years, 118. If land rigs are stacked longer than three years, census rules state that they should be removed from the available count. Assuming no changes occur in their status over the coming year, most of the 78 rigs stacked for more than two years will leave the census in 2015. Often, idle rigs are retired for other reasons before their stacked status targets them for deletion. Rigs that require a large capital expenditure to be up and running are removed from the fleet, and fall into the category “Removed from Service.”

Full-year utilization is another statistic used to measure overall fleet dynamics. This percentage is the ratio of active to available rigs that drilled at any time during the past year. Adding the 2,269 active rigs, to the 529 rigs stacked less than one year, provides the total number of rigs that drilled between the end of the 2013 census and the end of the 2014 census. This full-year utilization figure indicates that rig owners used 2,798 units, or 86% of all available rigs this year. This compares with 91% during the past census period. So, although utilization increased during the census active period, full-year utilization shows a decline. This indicates that the rig activity upswing was a relatively recent occurrence.

Regional results are also computed for the census and often show variations based on area market conditions. Every U.S. region had increases in available rigs for 2014, with the exception of the Gulf Coast, which only declined by one rig. Seven out of 10 regions experienced increases in rig activity. The regional breakdown, which compares this year’s numbers to 2013, is shown in Table 4. The regions with the greatest percentage increases in activity were the Northeast states, up 31%; the Permian basin, up 29%; and the Southeast states, up 22%. It is believed that the Permian basin region, in particular, experienced a bump in activity, due to increased horizontal drilling. California was the area showing the greatest decline in activity, down 15%. Utilization, by region, also shows mixed results, with six out of 10 regions having increases.

The regional figures just mentioned are a combination of land and offshore statistics. Looking only at U.S. land rigs, however, we also see a modest increase in utilization. For 2014, land rig utilization was up to 70%, versus 68% in 2013. The U.S. marine fleet made a significant utilization gain in 2014, rising another seven percentage points to 69%. Rigs in greatest demand were inland barge rigs at 78% utilization, and floating rigs at 77%.

Analyzing the U.S. land and offshore rigs by depth capacity, differences are visible between units in various ranges. The rigs with the highest utilization, 78%, continue to be those in the 16,000-to-19,999-ft range. Those with the lowest were the most shallow (3,000 to 5,999 ft), with a utilization of 57%, Table 5.

CANADIAN ACTIVITY RISES SHARPLY

Canada experienced a noteworthy increase in rig activity over the past year. Since the census is taken every year in the late spring and early summer, the timing of the spring thaw, and the ensuing road restrictions put in place to avoid environmental damage, often cause big differences in year-to-year active count statistics. For 2014, the active count surged, as total units drilling numbered 352 during the 45-day active window. This was a 22% increase from the same time in 2013.

Utilization was pushed up this year, because active rigs rose at an even greater rate than available rigs. Canadian utilization measured 44%, versus 37% the previous year, Fig. 6. Subdividing the fleet, more than 60% of available rigs in Canada have drilling capacities between 6,000 and 12,999 ft. However, utilization by depth capacity shows that demand is now greatest for units in the 13,000-to-15,999-ft range, where the demand-and-supply ratio comes in at 63%. We have been told that some of the major players are transitioning to deeper rigs, as drilling focuses more on the long-reach horizontal market.

Fig. 6. Canadian available vs. active rigs, 2002-2014.

INTERNATIONAL RIG UTILIZATION INCREASES

NOV personnel are asked each year to examine rig counts on a country-by-country basis and then calculate international rig utilization for the primary areas. Accuracy in counting rigs can vary greatly, depending by country, but best-guess estimates are still included in the averages. For 2014, all areas, with the exception of Asia (including China), show increases in utilization. Many of the increases since 2013 can be attributed to improved data sources and record-keeping, as NOV attempts to better understand the international market.

The latest counts in the FSU countries of Kazakhstan, Uzbekistan, Azerbaijan and Turkmenistan brought utilization figures up for Europe (including the FSU). Asia (including China), is especially difficult to get a handle on, due to secrecy in the Chinese oil field, but our focus on this area facilitated greater accuracy in determining the active-versus-idle count. Middle Eastern rig counts were up significantly, as Saudi Arabia required more rigs to maintain its oil production levels.

In Latin America, overall utilization was up, although it was due primarily to available rigs being down, instead of overall activity being lower. Venezuela was the country with the greatest increase in active rigs, due to the growth of proven reserves in the Orinoco Belt. Mexico had somewhat of a utilization increase, but overall rig counts were actually down, due primarily to PEMEX budget issues. In Brazil, Petrobras’ drilling activities were negatively influenced by economic and political issues, which did cause activity to decline, although rig utilization rose. Colombia saw rig activity decrease, as well, due to community issues and strikes in oil states.

Worldwide, it is known that some areas have large numbers of available rigs, but these units are often saddled with older technology and may not be universally mobile or marketable. Also, in some cases, available rigs are actually under contract awaiting a project start, and are, therefore, unavailable for other work, Table 6.

MOBILE FLEET CONTINUES ITS ASCENT

The global offshore mobile fleet continued to show activity gains during the 45-day, census active window of May 9 to June 22. The count rose to 725, an increase of 28 units or 4%. This is the highest number of active rigs recorded for the global offshore mobile fleet since statistics started being kept in 2001. This compares to an active count of 697 in 2013, and it is the first time that the count has surpassed the 700 mark. With the exception of platform and inland barge rigs, all offshore mobile units are included in these figures. Utilization didn’t change much in 2014 for the fleet, since both available rigs and active rigs increased at similar rates. It fell just one percentage point to 81%, Fig. 7.

Fig. 7. Global offshore mobile available vs. active rigs, 2001-2014.

U.S. INDUSTRY TRENDS

In addition to looking at rig statistics, the census determines the total number of rig owners each year. The number of owners has, essentially, leveled off for the last several years, with the number of new drilling companies being added balancing closely with the number of companies ceasing operations. For 2014, the net number of rig owners increased slightly, by six companies, to 319, Fig. 8.

Fig. 8. U.S. rig owners, 1987-2014.

Drilling contractors always have owned considerably more drilling rigs than operators, although the percentage of operator-owned rigs has grown slightly over the years. For 2014, the operators’ portion of the fleet went up to 15%, a one-percentage-point increase. This translates to operators owning 472 rigs out of the 3,254 total units. Contractors own 85% of the fleet, or 2,782 rigs.

Rig ownership in the U.S. also can be examined by the fleet sizes of individual companies. When industry consolidation began accelerating in the late 1980s, many companies grew quickly as they bought up their competitors. These larger companies (those with more than 20 rigs) continue to hold the largest percentage of the fleet, again, this year, about 59% of all rigs. However, when the market is good, new companies tend to enter the drilling arena. There are 87 companies that own a single rig and are able to capitalize on unique market conditions in their area of expertise.

CREW CONCERNS

An annual survey is mailed out to drilling contractors every summer, inviting them to provide data about their current business environment and their opinions about the industry. The 2014 survey was completed by 39 contractors, which is about 12% of all U.S. rig owners. A variety of company sizes and regional areas were represented by this year’s respondents.

Every year, owners are asked to rank a list of eight key issues that are typically of concern in the industry. In recent years, three issues have continued to surface as the top concerns. “Crew Availability” was the number-one problem mentioned in 2014, moving “Rig Rates,” the top problem in 2013, down in importance. The skilled labor shortage is becoming acute and may be slowing the industry’s rate of growth.

The second-highest problem this year is “Government Regulation,” remaining in the same position as last year. For the past several years, there has been anxiety about new mandates that could impact the drilling industry in a negative manner. Hydraulic fracturing, especially, has been on the regulation forefront recently. “Rig Rates” were ranked as the third-highest problem this year, after falling from the number-one ranking in 2013. Although rates affect profitability and are always a concern, when active rig counts climb and business is better, other issues tend to move up in importance. More advanced mobile rigs may be able to demand higher rates in some areas. However, better rig rates can only go so far in helping alleviate severe crew shortages, when crucial training time is needed, Table 7.

Respondents are asked to share some of their company’s current business figures. Labor rates on average have gone up another 5% over the past year, and continue to rise as companies try to recruit and maintain crews. The cost of insurance and benefits also has an impact on expenses, which continue to escalate. Rig maintenance is another significant expense for contractors, and it tends to increase annually. This year, contractors told us that maintenance costs were going to be about 2% higher than in 2013. There are still a number of older rigs in the fleet that are very costly to maintain.

Contractors told us that, on average, their rig activity has gone up almost 8%, compared to a year ago. This estimated percentage is a little lower than the overall increase of 10% measured in the census this year. Respondents also had an average increase of 2% in their land rig rates over the past year. This increase is in line with higher rig activity, but does show that rates have not kept up with activity levels. Contractors seem optimistic that rig activity will continue to improve over the next year, and they forecast an increase of almost
7% for 2015.

Along with horizontal drilling and hydraulic fracturing, pad drilling has been one of the most important innovations in recent industry history. Therefore, a new question was added to the survey this year, which asked contractors to estimate what percentage of their wells used pad drilling. This number was almost 31%, a significant percentage for a technology that has been around for less than a decade. In actuality, we know that in many of the big plays and among some operators, an even higher percentage of wells are drilled using pad drilling.

CONTRACTORS PLAN TO EXPAND FLEETS

The 2014 Contractor Survey also asked rig owners to choose among several statements that best described their company’s plans for the next five years. Recent economic prosperity, and an optimistic outlook, are apparent in this year’s results. About 51% of contractors told us that they expect to “Expand Current Fleet” in the next few years. With advanced technology, rigs are able to optimize output at a faster rate, so it isn’t surprising that a majority of contractors would expect to increase profits by adding newer models to their fleets.

The next highest number of responses, 31%, included contractors who predicted “No Plans for Change” in the next five years. Fewer owners checked the boxes for “Unknown” (10%), “Diversification into Other Businesses” (8%), “Pursuing International Opportunities” (5%), “Seeking Merger Opportunities” (5%), and “Downsizing Current Fleet” (3%). It is important to note that contractors were allowed to choose more than one category, so the total is greater than 100%.

FORECAST FOR 2015

The outlook for 2015 is more of a good news/bad news scenario. Market conditions remain good in North America, especially in the shale plays and other unconventional resources. Demand for the best rigs is expanding. Advances in rig technology will continue to improve drilling efficiency, safety, and the environmental impact.

Growth in land rigs is expected in Canada, Latin America and the Middle East. The offshore global mobile fleet will continue to add to its numbers with state-of-the art rigs. Furthermore, analysts expect the world’s energy consumption to continue to grow.

However, combining higher rig efficiency with crude prices that have slumped in recent days, does impact our optimism. It’s possible that in 2015, if supplies are still high, U.S. utilization may fall slightly, since fewer rigs will be necessary for new production. Hopefully, the recent commodity price dip is just an aberration, and this dynamic industry will continue to prosper in innovative ways.  

ACKNOWLEDGEMENT

NOV partnered with several companies to collect industry statistics published in this article. IHS is the primary source used for the U.S. land rig fleet and global offshore mobile fleet. Nickle’s Energy Group is the principal source for the Canadian figures. Information for some areas, particularly the international fleet, was collected and analyzed by NOV personnel. The following individuals are recognized for their specific contributions to this year’s rig census: Tom Kellock (IHS); Jacoby Garcia (RigData); Melissa Brouillard, Franklin Pinerua Cardozo, Kristin Gilbertson, Keith Joseph, David Nassif, Tim Tynan, Adriana Vizcarrondo (NOV).