MONSTER RIGS IN DEMAND
‘Super-spec’ units drill for oil with greater efficiency, speed
HOUSTON — Oil companies are shelling out more cash and signing long contracts for a limited supply of monster rigs that drill wells much faster than the older models that led the U.S. first shale boom.
The Houston Chronicle reports some rig suppliers have recently signed 18-month and two-year contracts for these so-called super-spec rigs, collecting up to 20 percent more in daily rates as U.S. producers scramble to lock down the most-efficient rigs.
Earlier this year, oil producers had resisted entering higher-priced, long-term contracts, but these new agreements with Houston’s Nabors Industries and others signal oil-field contractors have regained some clout in a market that earlier forced deep discounts and forced them to cut thousands of jobs during the oil downturn.
“Every single one of the super-spec rigs that can work is working today,” James West, an analyst at investment bank Evercore ISI in New York, said in an interview.
Rig contractors have dispatched hundreds of these machines across the country in a record 23-week upward streak in the U.S. rig count this year, which ended June 30 as the count fell by one to 940, according to the Houston oil services giant Baker Hughes. In recent weeks, oil prices have fallen to around $45 a barrel. If oil stays cheap, the nation’s rig count could drop about 20 percent next year from an expected 1,000 at the end of 2017.
But even then, oil companies aren’t likely to give up the super-spec rigs that can drill a well in less than 10 days, shaving more than a week from the average drilling time in 2010.
“It’s all about efficiency,” West said.
Investors coined the term “super-spec rigs” last summer when these powerful, upgraded machines first emerged with the capacity to load 750,000 pounds of pipe — the weight of a fully loaded Boeing 747 — and drilling systems with 1,500 horsepower.
As drilling activity has surged in West Texas, southeast New Mexico and other spots, Houston rig contractor Patterson-UTI Energy has hired almost 4,000 new workers since January for both its drilling business and its pressure pumping segment, which includes hydraulic fracturing.
Xtreme Drilling Corp., a Canadian rig supplier, recently said it’s locked in more than $24 million in revenue over the next year with three contracts for upgraded super-spec rigs, pushing the rig day rates toward $22,000 a day. Matt Porter, president and CEO of Xtreme, said the higher rates his company has gotten for super-spec contracts show operators will pay a premium for more efficient drilling.