Baker Hughes' Drilling Rig Counts are Down While Costs Rise
Baker Hughes Inc. (Houston) announced that its worldwide rig count for December 2012 was 3390—down 70 from the 3460 counted in November 2012 and down 222 from the 3612 counted in December 2011. The international rig count for December 2012 was down 14 from the 1267 counted in November 2012, but remained up 73 from the 1180 counted in December 2011. The international off-shore count remained largely unchanged.
The average US rig count for December 2012 was 1784, down 25 from the 1809 counted in November 2012 and down 219 from the 2003 counted in December 2011. The average Canadian count for December 2012 was 353, down 31 from the 384 counted in November 2012 and down 76 from the 429 counted inDecember 2011. Source: Baker Hughes
While rig counts are down 2-3%, the actual cost of building upstream oil and gas facilities is rising, according to IHS. The company said in December that its IHS Upstream Capital Cost Index (UCCI) rose 1% over the first three quarters of 2012. According to IHS, the small rate of increase for the UCCI can be attributed to increased day rates for deep-water rigs. In a press release, the company explains “…despite new entries into the market these rigs are in high demand and with rising fuel and labor costs can command premium rates. High-spec rigs continue to increase in day rates in North American driven by tight oil and unconventional activity.”
The press release also noted that countries that require a high local content continue to experience the largest cost escalations. This is because demand continues to outgrow local supply. Backlogs for equipment and subsea orders continue to grow, with little pass-through of falls in raw material costs.
IHS expects upstream capital and operating costs to continueto rise by 4-5% in 2013.
Source:IHS
There is other potential good news for suppliers of equipment that supply machinery for making oil-field equipment. One source notes that the US is seeing a rebound in off-shore drilling after recovering from the disastrous BP Gulf of Mexico spill in 2010. “In the Gulf of Mexico,105 drilling permits were issued through August 2012 compared to 79 in all of 2011,” reported Dana Scott of Mazak Corporation to SME’s Manufacturing Engineering Magazine in an article to be published in the March 2013 edition. More importantly, he sees the existing equipment is getting elderly. “Of the 474 jack-up rigs used in the worldwide fleet, 317 are 25 years and older –approaching the end of their useful life,” Scott reports. “New jack-up rigs are being built right now, there is going to be a tremendous amount of deep-water drilling.”