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 for multiple wells in a geographic location.
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
Jun 23, 2024 - Wages Climb to New High
- According to the latest US Bureau of Labor Statistics data, the producer price index for oil and gas well drilling services was relatively flat in April (up less than 1%) compared to a year ago after rising 9% in the previous annual comparison. The lack of pricing power followed declines in total crude oil production and natural gas withdrawals in February compared to the previous month, although both were up significantly year over year (YoY), per the US Energy Information Administration. Average industry wages rose 3% year over year to a new high of $44.66 per hour in April, while employment by the industry grew 2.2% in May YoY, BLS data show.
- 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.
- Rivals Diamondback Energy and Endeavor Energy Resources have agreed to merge as higher oil prices and the accelerating land grab in the Permian Basin spur consolidation in the energy sector, The Wall Street Journal reports. Diamondback beat out other suitors, including ConocoPhillips, in striking a $26-billion deal for Endeavor, according to WSJ. The merger, slated to close in Q4, follows deals by oil giants Exxon Mobil (for Pioneer Natural Resources) and Chevron (Hess) reached late last year which ignited a flurry of activity in the sector. Diamondback’s tie-up with Endeavor will elevate the combined company to top-tier status in the US's largest oil patch, with crude production likely eclipsing 400,000 barrels per day, per WSJ. 2023 was a big year for mergers and acquisitions in the oil and gas industry, with more than $250 billion worth of deals struck, according to analysts, the highest annual total since 2014, according to Investor’s Business Daily.
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