For high spec rigs, dayrates may be about as low as they go this downcycle assuming oil prices stay above $40 a barrel. There isn’t an extremely active spot market for land rigs these days, but for contractors still bidding, dayrate pressure has abated.
Average spot pricing today is almost 30% below peak. Several weeks ago, Helmerich & Payne said that spot dayrates for high spec rigs are in the $17,000-$18,000 per day range, a range we’ve now seen since June. Helmerich & Payne currently has about 24 US land rigs active in the spot market, down 5 rigs in the past few months.
In slower spot markets, there is less pressure from operators for dayrate reductions. And at these levels, there is only several thousand dollars of margin per rig day in the work for drilling contractors. Operators continue to pressure pricing on larger ticket items (on the completions side), but land rigs are a smaller part of the total cost and are delivering good value at current levels.
If the price of oil slips into the $30s, dayrates would no doubt resume their slide. And there are other levers operators are pulling to lower drilling costs. But for now, the contractors are catching a break on headline dayrates.
Weekly North American Rig Count Statistics
The North America rig count fell 20 units last week, with the biggest hits coming in US horizontal oil drilling and Canada. With the US benchmark oil price threatening to break below $40 per barrel, we continue to believe the drilling outlook is skewed negative over the next 3-6 months.
As 2015 budget dollars begin to run out in 4Q, we expect drilling activity to stall over the next couple of months. If our estimate of a 20%+ drop in 2016 NAM E&P spending proves correct, rigs may continue to trickle into yards during 1H16 depending on how deep 4Q cuts get (deep 4Q cuts would mean some sort of bounce back in 1Q16).
While the weekly figures will ebb and flow, the recent leg down in oil prices jeopardizes stability, and the rig count trough that has recently been established (in the 800-850 range) has now been broken and we are stepping down again. We expect the 700 level to be broken before the year is over.
In Canada, the rig count fell 10 rigs to 166 for the week, but this seasonally strong period is tracking well below recent years.
A regional summary of rig counts by key basins is below. With 225 rigs working, the Permian is still the most active basin, and it was down 4 rigs on the week. The Eagle Ford, with 75 rigs running, is the second most active basin, and it was up 2 last week. With 63 rigs running, activity in the Bakken was flat last week.