Drilling Oil & Gas Wells
Industry Profile Report
Dive Deep into the industry with a 25+ page industry report (pdf format) including the following chapters
Industry Overview Current Conditions, Industry Structure, How Firms Operate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.
Call Preparation Call Prep Questions, Industry Terms, and Weblinks.
Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.
Industry Profile Excerpts
Industry Overview
The 1,472 drilling contractors in the US provide drilling services under contract to oil and gas producers. Drilling may be land-based (domestic or global) or conducted in shallow or deep water, and each type requires a unique set of capital equipment. Contracts can be for a single well or multiple wells in a geographic location.
Volatile Energy Prices
Demand for drilling is affected by gas and oil prices, which can be highly volatile.
Dependence on Third Party Suppliers
Demand among drilling companies for consumable supplies, ancillary rig equipment, and third-party services can exceed local supply and result in increased prices and delivery delays.
Industry size & Structure
A typical oil and gas drilling company operates from 1-2 locations and has annual revenues of $11-12 million.
- There are about 1,472 firms providing drilling services in the US that employ 46,000 workers and generate $18 billion in annual revenue.
- 80% of firms employ 20 or fewer workers; 7% of firms have more than 100 employees.
- Large drilling firms include: Transocean Ltd., Seadrill Ltd, Helmerich & Payne, Nabors Industries Ltd, and Noble Corporation.
- Major suppliers are oil and gas service companies, such as SLB (aka Schlumberger), Halliburton, and Baker Hughes. They provide pipe, chemicals, drilling mud (drilling fluid), concrete, waste disposal, etc.
- Buyers of a drilling company's services are oil and gas exploration and production companies, such as Exxon-Mobil, Total SA, BP Oil, Chevron, ConocoPhillips, Shell, Range Resources, etc.
- Entry into the business is difficult because drilling rigs are expensive and require highly experienced crews. Production companies prefer to contract with firms that have a proven track record in both operations and safety since penalties for leaks, spills, and environmental breaches can be severe and can result in lost leases.
Industry Forecast
Drilling Oil & Gas Wells Industry Growth
Recent Developments
Aug 23, 2024 - Rising Producer Prices
- Producer prices for oil and gas drilling services rose 3.3% in July compared to a year ago after rising 5.1% in the previous July-versus-July comparison, according to the latest US Bureau of Labor Statistics data. Employment by the industry grew 3.1% year over year in July, while average wages at oil and gas extraction firms rose 3.3% in June to $44.23 per hour, BLS data show. While employment by drillers is down significantly from highs in the mid-2010s as rig counts fall and companies rely more on technology to drive down production costs, wages have risen sharply.
- A declining onshore rig count, consolidation in the energy sector, and weak natural gas prices are sapping demand for oil field services in the US oil patch, The Wall Street Journal reports. According to data from Baker Hughes, the oil and gas rig count in North America has been declining steadily since peaking in late 2022 and remains below pre-pandemic levels. In July, oil field giant Halliburton reported its rig count in the region declined 12% in Q2 compared with a year earlier and that its revenue in the region fell 8%, the fourth consecutive quarter of decline. Similarly, rival SLB’s revenue in North America dropped 6%, according to WSJ. Haliburton and SLB are faring better abroad, with international revenue up 8% and 18% year over year, respectively. Halliburton’s CEO told WSJ he thinks activity in North America should pick up in 2025 after producers digest their acquisitions.
- Oil and gas extraction companies are expanding offshore drilling operations in the Gulf of Mexico in part because doing so releases fewer greenhouse gases than drilling on land, The New York Times reports. Industry executives are betting on sustained demand for oil and gas for years to come and argue that offshore drilling is better for the climate than drilling on land because offshore operations emit far less greenhouse gases than producing the same amount of oil and gas on land, according to NYT. The greenhouse gas emissions associated with extracting a barrel of oil from the Gulf of Mexico are as much as a third lower than emissions from producing a barrel of oil from fields on US soil, according to a report published last year by the National Ocean Industries Association, an industry group for offshore oil, gas, and wind businesses, cited by NYT.
- Early forecasts for an “extremely active” Atlantic hurricane season could threaten offshore oil and natural gas production in the Gulf of Mexico, according to a new report from researchers at Colorado State University (CSU) released in April. The CSU report forecasts 23 named storms, including 11 hurricanes — five of them potentially reaching major status, meaning Category 3 or higher. In a typical season, there are 14 named storms with seven hurricanes, three of them major. The CSU team said that warm ocean waters serve as the fuel source for hurricanes. CSU's forecast follows a report released in March by US meteorology firm AccuWeather that also predicted an active hurricane season. NOAA will issue its first seasonal hurricane report in late May. Even the threat of a major storm can disrupt oil and natural gas production because companies must evacuate US Gulf platforms as a precaution.
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