Tuesday, November 26, 2013

Some Thoughts About The "Rig Count" In North Dakota

Earlier I noted the jump in active rigs in North Dakota.  [I am rushed; so this post needs to be edited later, if I remember; there may be typos, etc. Some additional information needs to be added.]

A reader provided some clarification. The reader's note, heavily edited follows.
  • There are several explanations for the increase in rig count:
  • You are right about EOG. They have added two rigs. Patterson rigs 488 and 134 are new to them. However, on the ND state rig list Nabors B12 is listed twice. 
  • Also, there are 3 rigs drilling salt water disposal wells (SWD).
  • Finally, there are a large number of surface rigs running right now. The Sidewinder, Craig, White Mountain, Major, Noble, Leon Ross, and AES rigs are all surface rigs which drill and set the surface casing only, and then move.
This is a great note.

My edited reply (I'm in a rush, so I will probably edit this note later):
I've run into this problem before.  I simply report the number of rigs as posted at the NDIC site regardless of "type."  The numbers reported earlier (with the "record" of 218 or whatever it was) also included SWD rigs.

Rig count, early on, used to be an important indicator of production going forward, but over time I've learned that the  rig count is less important than what I call "rig effectiveness." I believe EIA calls it rig efficiency, or something to that effect. Whatever they call it, it is a new metric for the EIA. In addition, Baker Hughes has also added a new metric to their weekly rig counts, so everyone is recognizing "things" in the oil patch are changing.

Something no one has talked about -- and this is why "rig count" continues to be important to me -- is that "rig count" reflects almost linearly on "activity" in the oil patch in western North Dakota. The more active rigs there are, regardless of what they are doing -- spud, vertical, horizontal, work over, or salt water disposal, the more activity going on.

The activity I think about: a) more jobs for everyone involved; b) more trucks on the road; c) more road building across farmland/prairie (even SWD wells need access); and, d) more rural electricity needed.

In addition, more active rigs, regardless of the reason, require more material -- especially more pipe, and as noted, electricity (or some other power source).

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