Pioneer Drilling Reports Slow Down in Eagle Ford Rig Contracts

Drilling Rig 7
Drilling Rig 7

Pioneer Drilling is forecasting thinner margins and lower utilization of its rig fleet due to falling natural gas and oil prices. Eagle Ford drilling rig utilization is a direct contributor to the suppressed numbers. The company ran an average of more than 13 rigs/week in the Eagle Ford during the second half of 2011, but only 10 rigs were running as of June 22, 2012.

“With the recent declines in oil and natural gas liquids prices, we are seeing some softening of demand in certain markets,” including in the Eagle Ford Shale, said Pioneer CEO William Stacy Locke in a statement.

 

This shouldn’t set off alarms. Not many (if any) companies planned for $2 natural gas and those that did were hoping for $100/bbl oil. Lower commodity prices mean less cash flow to use in developing plays like the Eagle Ford. The overall U.S. rig count is expected to fall under pressure in the second half of the year if commodity prices don’t recover.

Chesapeake energy is one example of a company planning to drop rigs. CHK has 32 rigs running now, but plans call for the company to average 30 in 2012. We’re half-way through the year and the company has averaged 33 rigs running to date (not counting spudder rigs). If they stick to the plan, they’ll need to drop 5-7 rigs in the second half of the year.

A Lower Rig Count Does Not Automatically Mean Fewer Wells

Operators are improving drill times and operational efficiencies across the play. That means they can drill the same number of wells with fewer rigs. If Chesapeake improves drill times by 20%, it can drop 6-7 rigs and drill the same number of wells. Expect to hear more about efficiency improvements during Q2 earnings calls.

Read more from Vicki Vaughn regarding Pioneer Drilling’s announcment at fuelfix.com