U.S. land rig market: What 2021 will bring ?

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Our latest update &  what to expect in the U.S. land drilling rigs market

The current status

  • Many US rig contractors report an increase in activity in the last 6 months
  • Utilization levels improving, as more rigs are added. As of the end of April 2021, there are 423 land drilling rigs working in the U.S. vs. 231 six months ago and 444 in April 2020.  Yet this is far less to pre-pandemic levels of 764 drilling rigs in January 2020 ( source)
  • US land drilling rig utilization levels, by the company - top 5 rig companies in the USA ( companies quarterly reports) 
    • H&P – 39% 
    • Patterson UTI – 35% 
    • Nabors Drilling - 30% 
    • Ensign - 21.6 %
    • Precision Drilling – 38% 

 

Trends in the U.S. onshore drilling rigs market

  • Digital technologies and automation that drive efficiencies, expected to dominate the theme and be a significant value driver. In addition, operators may even demand the rigs to be “digitally” enabled, as it helps to lower the total well cost and reduces downhole risks.
  • Performance-based contracts are gaining popularity and as much as 30% of the active drilling rigs are on the commercial models that are based on the performance of the rig/company. This new performance-based contracting model adds between US$1,000 to US$2,000 per day as additional revenues.
  • Retiring and scrapping of older rigs that are not capable to deliver the required performance,  appear to gain more traction - H&P announced it may sell/scrap some of the rigs
  • Average day rates for onshore drilling rigs in the U.S. are trending upwards and currently stand at an average of US$ 21,800 (Q1 2021), up from aver. of US$ 21,700 in Q4 2020. Yet, this could be because of the idle rigs that were on stack rate, to be back at work.   

 

What to expect in 2021 

  • Rig owners are likely to scrap rigs, with more robust rigs to remain as marketed. As a result, there likely to be more pressure on day rates to increase, towards the end of 2021.
  • Oil companies keep maintaining capital discipline and remain cautious about how they spend money and what contracts they commit to. There is no significant unstick in activities expected in 2021.  
  • Main market players expect c. 500 active drilling rigs in the U.S. by the end of the year (approx. 630 super-spec rigs are available in the U.S.)
  • Deployment of approx. 500 land rigs and scrapping of uncompetitive assets, may reach a level of utilization of c. 80% whereby the market and pricing power may switch back to rig companies.
  • Oil companies may be more willing and open to signing longer-term contracts, in the 2nd half of 2021, as the market forces may support this

 

Read our full analysis of the land drilling rig business here - it is free. 

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