US Transition Zone Drilling: Strong Controlled Market Keeping Dayrates Up and Steady
By Jerry Greenberg
The drilling and workover market in the US Gulf of Mexico transition zone has been faring better in some respects than the jackup market. There are only two major players in the inland water drill barge market, and they have been keeping utilization strong and dayrates relatively high by controlling the available supply of rigs. However, seismic companies working in Texas now have higher permit fees with which to contend that may affect the amount of activity in the future.
The major inland drill barge companies are R&B Falcon with 56 units, including 45 drilling barges and 11 workover rigs, and Parker Drilling, with 22 drilling and workover barges. These companies control about 90% of the 87 units in the Gulf. Only two other contractors operate inland drill barges, Sundowner, a Nabors Industries, subsidiary with four rigs, and Tetra Applied Technology with five rigs.
28 Units marked for drilling (back to top)
Less than half (42) of all the units are being marketed for a drilling contract, according to Offshore Data Services (ODS), in Houston. Only 28 of the 42 had contracts, translating into a utilization rate of about 31% of the total US Gulf inland drill barge supply and 67% of the marketed supply. Still, dayrates have held up fairly well compared with jackups, which have experienced a dramatic decrease in rates during the same period.
R&B Falcon's dayrates for its drilling units have remained essentially level from last year with rates ranging between $15,000 and $17,000, according to Bill Morgan, Vice President of Marketing with R&B Falcon.
Parker Drilling's average dayrate is similar although it is down about $2,000 per day from a year ago. The company's rates presently average just over $17,000 per day. "The average a year ago was just under $19,000 per day," said Toby Begnaud, Vice President of Marketing and Contracts for Parker Drilling. And those are not bad rates considering that some 250-ft. water depth jackups in the Gulf have reportedly been contracted at less than $10,000 per day.
Workover units are available for about 60% lower than drilling rigs. Parker's workover barge unit dayrates are about $6,800 today, according to Begnaud. "That compares with around $8,700 per day a year ago," he said. R&B Falcon's workover rates are similar.
A market with only two major players is one factor for continued high dayrates, but another is the fact that they keep rigs off the market to help those rates. R&B Falcon is only marketing 12-14 of its 45 drilling barges and only three of its 11 workover rigs. In early 1998, the contractor was marketing 28 drilling barges. Morgan believes the company can maintain about a 75% utilization rate with those 12-14 units. "Most of our work is well to well," Morgan said. "I might have 100% utilization one week and 75% the next."
Begnaud sees a fairly strong market for his inland drill barges, saying that some oil and gas companies have delayed working over wells, especially on the inland waters and the shelf. "That is partly due to higher rig rates the last two years making those projects uneconomical," Begnaud said. He believes that workover activity will increase because dayrates for inland workover barges have dropped about $2,000 per day from a year ago.
Making a case for exploration activity, Begnaud says: "We have the same sedimentary, the same sands at 20,000 ft. in inland waters that they do in deep waters offshore. When you can drill a well for a total operating cost of $40,000 per day in inland waters versus $350,000 in deep water, you can shoot for a smaller reservoir. Also the ability to get production from South Louisiana into the pipeline is fairly immediate because of the infrastructure."
Range of alliances (back to top)
Another reason for Begnaud's optimism is that Parker has an exclusive drilling alliance with Texaco calling for all of the operator's inland water drilling and workover requirements. The operator is the largest water bottom leaseholder in South Louisiana's inland water bays and estuaries. The alliance will initially utilize two of Parker's drilling barges, each for a planned one-year program. Additional drilling units will be used as required.
Parker and Texaco have had a workover alliance for the past two years, while R&B Falcon and Texaco had a separate alliance to provide the operator's inland water drilling requirements. Last year, Texaco operated an average of five barges among the two contractors.
Begnaud also believes that there will be more deep drilling activity. While he says wells drilled between 9,000 ft. and 12,000 ft. in search of oil will be the hardest hit, he says deep drilling for gas will increase both inland and on the shelf because of new information available from 3D seismic. "Parker presently has two inland drill barges drilling to depths in excess of 20,000 ft.," Begnaud said. "I believe there are going to be a number of bright prospects."
While there has been quite a bit of new 3D seismic acquisition along the transition zone, the low oil price has reduced that activity to a minimum. It is fair to say, however, that seismic activity in virtually the entire US Gulf has been affected by low commodity prices.
Seismic activity (back to top)
Seismic activity along the Gulf Coast was strong until last summer when low oil prices cut into activity. A new permit fee structure in Texas will have an effect on future seismic because of significantly higher costs.
The fee system was changed by the Texas General Land Office (GLO) from a per day system to a per acre fee. The change was effective last January 10.
According to one seismic contractor active in the transition zone, the usual per day fee for seismic acquisition in Texas state waters was typically $300. The new fees range from $2 per acre for high velocity energy sources in the Gulf of Mexico and $5 per acre in bays and other tideland areas. The per acre fees utilizing low velocity energy sources are half of those rates.
For example, using a low velocity energy source, under the previous dayrate structure, a crew that could shoot 25 large blocks in the Gulf of Mexico per month would pay fees of $9,000 per month based on $300 per day and 30 days per month. Under the new fee system, the permit cost for Gulf of Mexico blocks is $1 per acre. A large offshore block contains 5,760 acres, so shooting the same 25 blocks now would cost $144,000 in fees.
"I don't disagree that the initial charges were too low," said Wayne Wheeler with Jebco in Houston, "But it has gone to a fee that is too high. They went from one extreme to the other."
"It is very onerous to our business at a time when we are down," said Marc Lawrence, Senior Vice President of the Data Licensing Division at Fairfield. "The states should be doing something to help us rather than something that is going to hinder us. It is remarkable that a state like Texas, which is proud of its oil and gas heritage, would do something like that."
The GLO says many of the fees charged prior to the change did not reflect fair market value for the service provided or permitted. The agency said its fees pertaining to geophysical and geochemical exploration were last raised in 1985. The GLO contends that the fees for geophysical exploration "were raised to a level more representative of the fair market value, while not setting them at such as level as to inhibit such exploration on state lands."
As a result of comments similar to Marc Lawrence's, the GLO has reduced the fees by half, which resulted in the current fee structure. "The agency is keenly aware of economic pressures currently faced by the industry," the GLO said. The agency also realizes that encouraging geophysical exploration is in the best interest of the state. Therefore, as a result of these comments, the GLO has cut the proposed fees for geophysical exploration in half."
Perhaps the seismic industry should be happy with the present fee structure. "Industry should view this [reducing fees by half] as an incremental step, as the agency intends to bring its fees up to the level originally proposed as economic conditions warrant," the GLO said.
"I think the new fees will result in reduced sizes of surveys," Wheeler said. "Speculative surveys are going to decrease substantially. Operators are going to shoot smaller and smaller surveys because of the costs."
"Some operators may look at shooting smaller surveys if it is cost effective for them and gets them what they need on the revised pricing," said Steve Chang, Operations Manager for Southeast US for Western Geophysical.