Rigzone Musings on the Falling Rig Count

This is a very, very interesting, compelling, and timely article at Rigzone regarding the falling rig count.

The linked article reflects on a Yahoo!Finance story:

We were intrigued to read a Yahoo! Finance headline a week ago Friday that the domestic drilling rig count was "falling off the cliff." The headline was attached to an article discussing the year-end report of the weekly Baker Hughes tally of various drilling rigs working in the oil patch. The article went on to discuss the trends among the various categories of drilling rigs that Baker Hughes reports – oil, gas, other, total, horizontal, directional and vertical. We understand that writers of news articles, especially those posted on news' websites, often become flamboyant with their headlines in order to draw readership. Still, "falling off the cliff" struck us as an over-the-top assessment.

The article provides some nice background and ends with this:

So while the Yahoo! Finance headline writer may think the decline in the rig count over the past few months is like going over a cliff, we suggest he should measure activity against the pattern during the financial crisis. That's a pattern we would call "falling off the cliff." Let's hope we never see that magnitude of an industry contraction again, although based on the history of the oil and gas business, it will re-occur sometime.

In between the first and the last paragraphs, the writer mentions the Bakken.

I have my own thoughts on all this, but I could never "compete" with an energy investment banker, so I will let the writer have the first word AND the last word.

For newbies:

• max number of active rigs in North Dakota in the current boom: 218
• current number of active rigs in North Dakota: 185
• assumption: 10 ND rigs now moved to the Montana side of the state line but still in the Bakken
• three companies, once "busy" in the Bakken have either cut back or suggested they will cut back on drilling
• others can do the math

Truck Driver Shortage Persists in North Dakota

Link here to a Bismarck Tribune story.

These two stories on the same day in the same paper speaks volumes about my feeling that companies "laying down rigs" to cut costs is a red herring of a story in the oil patch.

The two stories: the first one I just posted moments ago, about MRO stating they are laying down rigs to save costs. The second one, the one linked above: a shortage of truck drivers in the Bakken.

Trucking companies are facing a labor shortage exacerbated by the needs of the oil field, but its growing population has also made North Dakota a more attractive state for truckers.  

“The driver shortage is probably one of our biggest concerns,” said Tom Balzer, executive vice president of the North Dakota Motor Carriers Association. 

Randy Roberts, terminal manager for Midwest Motor Express in Bismarck, said companies are stealing drivers from one another and many drivers are more likely to travel an hour to the oil field to make $25 an hour.

If you still doubt that laying down rigs to cut costs is not a red herring of a story, go back and consider the QEP - Helis deal in which QEP paid somewhere between $20,000 and $40,000/acre depending on how one pencils out the numbers. And the shortage of truck drivers in the oil patch.

Laying Down Rigs to Cut Costs -- MRO

Updates

September 18, 2012: Give me a break on all this chatter about rig counts falling. After hitting a post-boom low of 189 or 188 (I forget which), it held steady at 192 for quite some time. Today, it is up to 196. If companies are laying down rigs, they are laying down older, less efficient rigs. Where it used to take them up to 60 days to drill to total depth (back when the boom began), they are now drilling to total depth in 15 days and taking hours to move to the next well instead of days, due to pad drilling.

CRC has it right: folks talking about the declining rig count are looking for signs that the boom is over. Despite data to the contrary.

Original Post

Link here to the Bismarck Tribune.

Laying down rigs will cut costs, but laying down rigs to cut costs is a red herring of a story in the Bakken. Regular readers know my position on this and why I saw that.

I've blogged about it several times. If I have time, maybe I will go back and tag those earlier blogs so it's easier for newbies to read why I think this.