Rig Owners Forecast Further Drilling Decline -- Update
July 29 2019 - 6:49PM
Dow Jones News
By Ryan Dezember
Drilling rig owners and others who lease equipment to U.S.
energy producers forecast a slowdown in activity during the second
half of the year as natural-gas prices plumb lows and
exploration-and-production companies exhaust their budgets.
The number of rigs drilling in the U.S. has declined by about
10% over the last year, to 946 last week, according to
oil-field-services firm Baker Hughes, and big drilling contractors
are telling investors to expect more to be idled in the coming
months.
"We had expected drilling and completion activity to have
reached the bottom by now, but that doesn't appear to be the case,"
Mark Siegel, chairman of rig operator Patterson-UTI Energy Inc.,
told investors Thursday on a call to discuss the company's
second-quarter results.
The Houston company said that on average, 158 of its rigs were
operating during the second quarter, down from 176 during the same
period a year earlier. It said it expects a further 10% decline
this quarter.
Patterson-UTI's stock has lost about 40% over the last year.
Rival Helmerich & Payne Inc. last week made similarly dour
forecasts for its fleet and has been stripping components from
recently decommissioned rigs, a sign that it sees its downsizing as
lasting. Its shares are down 22% since this time last year.
Shares of Nabors Industries Ltd., another big owner of rigs, are
down 65% from a year ago, and the company is scheduled to discuss
its second-quarter results with investors on Tuesday. Nabors had
just 58% of its available 194 U.S. land rigs drilling during the
first quarter.
The contract drillers' struggles reflect a broader conundrum for
the U.S. energy industry since energy prices collapsed in late
2014: The rise in oil prices, up 24% this year and nearly double
what it was at the depths of the bust, hasn't been enough to bring
the sector consistent profitability or interest from investors. On
Monday, U.S. crude futures closed up 1.2% to $56.87 a barrel on the
New York Mercantile Exchange. Brent crude, the global price gauge,
gained 0.4% to $63.71 on London's Intercontinental Exchange.
In early 2016, when U.S. crude prices dipped below $30 a barrel,
oil-field-services providers predicted that they would need oil to
trade around $60 -- not the $100-plus perch from which it had
fallen -- to regain profitability, said Robert Callaway, managing
partner at Range Valuation Services LLC, an oilfield-equipment
appraisal firm.
"In the last downturn, $60 was thought to be the light at the
end of the tunnel," Mr. Callaway said. "Here we are, and it's not
working for a significant number of oil-field-services
companies."
Rig owners, as well as the exploration-and-production companies
that lease their equipment, have been hampered by depressed natural
gas prices and pressured by investors to operate with more
austerity.
Natural gas hit a new three-year low on Tuesday, with futures
for August delivery settled down 1.2% to $2.141 per million British
thermal units.
Analysts with energy focused investment bank Tudor, Pickering,
Holt & Co. said low prices for the power-generation fuel
prompted a 40% reduction during the second half of last year in the
number of hydraulic fracturing crews completing wells in Appalachia
and the Haynesville Shale near the Gulf Coast.
"We're increasingly worried about a repeat," they wrote in a
note to clients.
Given that the fleets of pumps used to crack open shale
formations are mounted to truck beds, the equipment can be moved to
oil-drilling regions, further depressing equipment lease prices
there by crowding the market.
Helmerich & Payne Chief Executive John Lindsay said budget
reductions accounted for most of the last 30 of the Tulsa, Okla.,
company's drilling rigs that were released by customers. "The
effects of the industry's emphasis on disciplined capital spending
continues to reverberate throughout the oil-field-services sector,"
he told investors on a call Thursday.
Write to Ryan Dezember at ryan.dezember@wsj.com
(END) Dow Jones Newswires
July 29, 2019 18:34 ET (22:34 GMT)
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