Recent Trends
Maturing and more complex reservoirs. The industry has become more reliant on advanced technology to increase recovery rates from existing fields and reduce operational and exploratory risk on new prospects.
Expanding the exploration frontiers. To increase reserves and production, major oil and large E&Ps are turning to the deepwater—exploration frontiers that require the highest-end technology and considerable scale in services and equipment, generating high margins for both offshore rig contractors and service companies.
Increasing service intensity& well complexity - Higher Revenue per active rig (as E&Ps take on drilling more challenging and complex reservoirs). Deeper reservoirs & directional drilling increases service intensity. Oil and gas wells have become increasingly “service intensive” over the past decade, which is consistent with the trend towards drilling in harsher environments as well as tight shales in North America. The trend is expected to accelerate over the coming years. Greater well complexity boosts pressure pumping demand above rig count growth: The biggest beneficiary of the shale revolution has been pressure pumping.
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Drilling in unconventional resources –
Shale discoveries have reinvigorated U.S. oil and gas production that just half a dozen years ago was widely seen as in terminal decline. Today, there is a glut of cheap natural gas, and domestic oil production is rising for the first time in decades. Shale development is even spreading to other countries, such as Poland and Argentina.
Rise of shale drilling has transformed US drilling into a manufacturing type operation which is hard to switch on and off quickly relative to conventional drilling of the past. Most US drilling is directed towards shale drilling, and to efficiently develop these resources, large-scale operations are required for many years. To ensure availability of critical oilfield services for such large development programs, E&Ps have signed unprecedented levels of take-or-pay contracts for drilling rigs and pressure pumping, two services that together make up about 75%-80% of a well’s cost.
Cracking open shale is a much more intensive, and expensive, process than traditional onshore drilling.
Shale plays necessitate higher directional drilling which increases service intensity and thereby oil field services revenue potential will increase. But dry gas plays have become less attractive indicate by lesser gas rig counts in the low natural gas prices environment.
Demand for pressure pumping, which enables producers to crack open shales to release oil and gas, has outstripped Halliburton and its competitors’ ability to provide the service, for example. In the last ten years pressure pumping has leap-frogged land drilling, offshore construction and offshore drilling to become the largest segment of the oilfield services industry, Lesar said.
While North America holds an estimated 15% of worldwide shale reserves, it has about 80% of global pressure pumping capacity.
Risk Factors
Environmental Concerns
The emergence of shale energy—and widespread use of hydraulic fracturing—has raised red flags. U.S. regulators are looking into what companies say about the gas they've found to determine if they are misleading investors. Environmentalists and local governments are concerned that the process is ruining aquifers and air quality. More threats on water table contamination.
Factors influencing rig counts
Rig count trends are governed by oil company exploration and development spending, which in turn is influenced by the current and expected price of oil and natural gas. Rig counts therefore reflect the strength and stability of energy prices. However, there are many other factors at work, including:
Technology:
· Minimizes the number of wells required to develop a reservoir
· Maximizes production from new and existing fields
· Increases the operational efficiency of the active drilling fleet
· Opens new frontiers for exploration (such as deepwater areas)
Weather:
· Interferes with the logistics of drilling schedules.
· Seasonal weather patterns such as the Spring thaw in Canada can have a profound impact on activity, with soft, wet ground making it difficult to move rigs and set up new sites.
· Severe weather such as hurricanes can impact the rig count by forcing the evacuation of personnel from offshore platforms and delaying rig moves to new locations.
Seasonal spending patterns:
· Rig counts rise and fall with company budgeting and spending cycles
· U.S. drilling activity often declines in the first quarter as prior year drilling programs expire. Activity then rises for the rest of the year, peaking in December to fulfill drilling commitments before budgets and leaseholds expire.
Other factors:
· Local taxation policies
· Government sanctions
· Political unrest
· Development of new infrastructure (such as roads and pipelines)
· Availability of capital investment