Drilling Activity Slacks Off
By Russell Ray Credit
TULSA, Okla., Oct 23 (Tulsa World) - Idle drilling rigs are piling up in the yards of
contractors everywhere, leaving the workers who manned them jobless and vexed.
Plummeting natural gas prices, a by-product of decreased demand and excess supply, have forced producers
to cut dramatically their drilling activity.
"There are rigs stacked everywhere," said Robert Cruzen, owner of Cruzen Drilling Co. in Cleveland, Okla.
Cruzen owns and operates two rigs, which were in high demand early this year after gas prices skyrocketed to
about $10 per 1,000 cubic feet. Last month, gas prices dropped below $2 and demand for Cruzen's rigs
vanished.
"It was expected," Cruzen said. "It was just a little quicker than expected."
During the past three months, the active rig count in the United States has dropped 14 percent to 1,100.
During the same period in Oklahoma, the nation's third largest gas-producing state, the number of active
drilling rigs plunged 24.5 percent to 114.
"We've had over 30 rigs released by customers" in Oklahoma, said Dennis Smith of Nabors Industries Inc.,
the world's largest drilling contractor. "Oklahoma is the hardest hit area of all our nationwide operations.
We've been forced to lay off roughly 600 people."
New Prospect Co., an oil-field services company based in Fort Smith, Ark., has five rigs actively drilling for
oil and gas. But once those jobs are completed, they will be added to the growing pile of inactive rigs, said
Tony Porter, manager of business development for New Prospect.
"We have nowhere for them to go right now," Porter said. "We're looking at some down time."
Houston-based Apache Corp., the second largest gas producer in the state, had 25 drilling rigs under contract
in Oklahoma five months ago, when gas prices hovered around $4. Now, the company has just two rigs active
in the state.
Apache president Steve Farris attributed the rapid drilling decline to an elastic natural gas market. The volatility
may prevent future investment in exploration and production, he said.
"Before we make a commitment to increase our capital spending, we have to get some assurance that there is
going to be less volatility," Farris said.
Last year, gas prices soared to uncharted heights after supplies fell to dangerously low levels. Producers raced
to corral new reserves due to the run-up in prices.
But drilling contractors struggled to meet demand because they couldn't find enough workers to man their rigs.
Many experienced rig hands, after being laid off during the oil bust in 1998, found more stable employment in
other industries and refused to return to the field.
To attract workers, wages for roughnecks were raised about 20 percent to $18 an hour. The active rig count
in Oklahoma surged, rising 31 percent in the summer of 2000.
"We've fought to bring new people on," said John Nikkel, chief executive of Tulsa-based Unit Corp., which
has 54 land drilling rigs. "We were just at the point of getting them experienced" when prices plunged.
In the past year, the number of drilling and production workers in Oklahoma has risen by about 2,000, up 7.4
percent, according to the Labor Department.
Unit's rig utilization has dropped to about 80 percent. Tulsa- based Helmerich & Payne Inc. said 49 of its 50
U.S. land rigs are still active.
"We can see another three or four rigs go down by the end of the year," said Hans Helmerich, chief executive
of the company.
"Six months ago, I didn't think we would see less than $3 gas prices," he said. "I thought we had a new floor."
Many service companies, including drilling contractors, jacked up their rates after commodity prices soared
last year. Industry officials said the higher service rates contributed to the recent bust in exploration by
depleting budgets and cash flow.
"Everyone raised their rates to take advantage of the upturn," Porter said. "It made the economics on these
wells pretty poor."
The dropoff in exploration will continue if gas prices remain low, Porter said.
"It's hurt a lot of people," he said. "It's going to continue."
But exploration and production companies were encouraged last week, as gas prices surged to around $2.50
on reports that this winter will be one of the coldest on record, which will boost demand for heating fuels,
including natural gas.
"If gas prices stabilize in the $2.50 range, you'll see rig utilization stabilize," Nikkel said. |
