Recovery to mean fewer land rigs needed to drill N. America?

The change also will mark 2009 as a dividing point for the largest land drilling contractors in their decade-long business strategy battle that sought to answer the question of whether companies should spend their money building newer rigs with enhanced technology, or spend it on simpler refurbishing projects. Proponents of the new-build philosophy appear to have prevailed, led by Helmerich & Payne, a company that startled the sector 10 years ago by launching an expensive newbuild program instead of the traditional refurbishing campaign.

"Companies with large fleets of commodity land rigs, such as Patterson UTI-Energy and most private rig operators, will likely be at a disadvantage while those companies that have invested heavily in fit-for-purpose rigs, like Helmerich & Payne, will likely be the main beneficiaries," Crandell explained in a recent report.

He and other analysts cite the shift to shale drilling as a key factor that has allowed operators to reassess their contract drilling goals while taking a breather during the downturn. Increases in shale drilling and production are expected to reduce the number of drilling rigs required to support the industry going forward," Crandell concludes.

While he agrees that the newbuild philosophy has carried the day, however, Richard Mason, publisher of the venerable Land Rig Newsletter, remains skeptical that recovery from this downturn will lead to any large-scale scrapping of older land rigs.

"We've heard that before, during previous downturns," Mason laughs. "Then, once the contractors have a chance to put those old rigs back to work wherever they can, they don't hesitate. We'll just have to see."

Regardless of the eventual fate for the older rigs, Crandell says the shift holds major implications for the industry in general as the drilling sector designs a new business model around the concept of improved efficiencies from higher technology.