US land drillers have been some of the hardest hit companies in the downturn as demand for tight oil drilling evaporated alongside oil prices. But Patterson-UTI, the 2nd largest land driller in the US, is looking through the downturn to the eventual recovery.
Speaking at an investor conference about a week ago, CEO Andy Hendricks’ talked about managing during what will be a difficult 2016. But his talking points often returned to how his organization will respond to the eventual recovery. In fact, he said the word “recovery” just as often as the word “downturn” – 7 times each. This perfect balance is at odds with visibility where there is none on growth and 100% on further contraction.
Here are several of his points that highlight a deep-rooted belief in a coming recovery:
“We are very well situated for the eventual recovery when it comes.”
“The majority of our fleet are the types of rigs that are going to be in demand when the large independents go back to drilling and start picking up high-spec rigs when we get into a recovery mode.”
“We can continue to scale [down] if times get tougher in 2016, and we’ll make it up the other side of this downturn and we are going to come out a stronger business than we were going in.”
“Going forward, I think, we’ll see a good take-up of this technology once we get into recovery mode out of this downturn.”
“If you look at the breakdown of the 161 APEX rigs that we have, 128 of those are the 1500 HP. So that’s right in the sweet spot of where the market needs to be for the eventual recovery.”
“So what types of rigs are people going to be looking for? So it’s a 1500 HP, it’s going to be mass load-rating with 750,000 pounds. It’s going to be multi-well pad capable…”
“We’ve said at the last call that we have 38% of our equipment stacked and one of the questions that we get is, well, how much of those equipment will go back to work when we get into recovery. Well, I expect all of it will go back to work because the average age is not very much.”
“Our equipment that is stacked has the ability in the recovery to all go back to work.”
OFS execs are in a tough spot as this downturn grows long in the tooth and their owners abandon ship. We expect more management teams to talk this way during 2016. Executives are living with the downturn, but they are living for the recovery, and they have to sell that hope to stakeholders no matter how bad things get.
And Andy does have a point – in this bleak climate it is easy to forget the good times. We must remember that this is a cyclical business. Even if 2016 is as bad as currently advertised (and it’s looking bad), 2017 could bring a rising tide to the ships that make it through the storm.
Weekly North American Rig Count Statistics
The North America rig count fell 12 units last week, with a gain in US oil drilling more than offset by declines in US gas and Canada. WTI has moved firmly into the mid-$30s just as 2016 budget season for the Independents is underway. We believe this skews rig count direction lower in the weeks and months ahead.
As 2015 budget dollars begin to run out in 4Q, North American drilling activity is stalling as year-end approaches. If our estimate of a 20%+ drop in 2016 NAM E&P spending proves correct, rigs will continue to trickle into yards during 1H16.
While the weekly figures will ebb and flow, the recent leg down in oil prices jeopardizes stability, and the 600 rig count level for US land could be tested in the weeks ahead.
In Canada, the rig count fell 12 rigs to 162 for the week. The seasonal winter break is upon us in Canada.
A regional summary of rig counts by key basins is below. With 206 rigs working, the Permian is still the most active basin, and it was up 2 rigs on the week. The Eagle Ford, with 77 rigs running, is the second most active basin, and it was up 1 last week. With 58 rigs running, activity in the Bakken was flat last week.