Pioneer Chief Executive Scott Sheffield expects an increase of 100 rigs in the Permian over the next 12 months.
Since the Baker HughesU.S. land-rig count bottomed on May 27, the Permian Basin has received the vast majority of the press — and for good reason.
The play has accounted for roughly 56% of the oil-rig recovery thus far. The Midland Basin added 37 of the total 124 oil rigs while the Delaware Basin contributed another 32 rigs. Meanwhile, acreage values are soaring to new heights and operators are communicating increasing activity and spending levels over the coming quarters.
We see scant signs of rig high-grading recently in the overall U.S. land market despite the dramatic fall in day rates over the past two years. Lower horsepower rigs (below 1,000 hp) accounted for 41 of the 302 oil rigs at the trough but kicked in 36 of the 124 (29%) recent rig additions. In the Permian this contribution was much less pronounced as smaller rigs accounted for 12 of the 69 rig adds (17%). Of those 69 new oil rigs in the Permian, 64 are horizontal rigs. This suggests to us that operators in the Permian are more likely to choose higher-specification rigs than are operators in other markets. It also suggests that recent Permian activity is service-intensive due to the overwhelmingly horizontal nature of the rig count, and this should bode well for pressure pumpers with Permian exposure.
However, we caution that service intensity for the broader U.S. pressure-pumping market may not be as robust due to a higher proportion of small rigs, vertical/directional wells and private operators.
Given the aforementioned resurgence in lower-horsepower rigs, smaller-contract drillers appear to have benefited disproportionately relative to the larger drillers under our coverage universe thus far. However, in the Permian, Helmerich & Payne, Patterson-UTI Energy and Nabors Industries all more or less held their market share. Helmerich picked up 10 of the 69 oil rigs in the Permian since the May trough while Patterson-UTI added six and Nabors added four rigs. Nabor’s 14 oil rigs in the Permian are still one more than Patterson-UTI’s 13 despite the latter being viewed as the Permian play.
On the operator side, Energen was the standout taking its rig count from one to 12. In addition, we note that leading-edge operators such as EOG Resources and Pioneer Natural Resources are largely employing the larger contract drillers and we may see a copycat effect over the coming quarters. Pioneer Chief Executive Scott Sheffield expects an increase of 100 rigs in the Permian over the next 12 months.