Whereas oil-field services outfits and exploration and production companies have benefited from improvements in drilling efficiency, firms that own these rigs and lease them to upstream operators have been one of the biggest losers from this trend.
The relevance of the onshore rig count as a forward indicator of production growth may be diminished, but the number of operating land rigs is still an important metric for contract drillers. Since the overall US rig count peaked in November 2011, these names have been stung by an almost 14 percent the number of drilling units operating in the US onshore market.
And this weakness hasn’t been restricted to plays that produce primarily natural gas. The active rig count in the eight oil-producing plays included in Baker Hughes’ (NYSE: BHI) data on well counts has dropped by 3.6 percent since the second quarter of 2012. Despite this drop in the number of rigs operating in these plays, the number of drilled wells increased by almost 5 percent over the 15 months ended June 30, 2013.
These efficiency gains explains why shares of only one of the three largest onshore contract drillers in the US–Hemerich & Payne (NYSE: HP), Nabors Industries (NYSE: NBR) and Patterson-UTI Energy (NSDQ: PTEN)–have outperformed the S&P 500 Energy Index and the Philadelphia Stock Exchange Oil Service Sector Index over the five years ended Sept. 30, 2013.
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Elliott and Roger on Oct. 30, 2017
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