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 Industry Structure, How Firms Opertate, Industry Trends, Credit Underwriting & Risks, and Industry Forecast.

Call Preparation Quarterly Insight, Call Prep Questions, Industry Terms, and Weblinks.

Financial Insights Working Capital, Capital Financing, Business Valuation, and Financial Benchmarks.

Industry Profile Excerpts

Industry Overview

The 1,700 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.

Volatile Oil Prices

Demand for drilling is affected by gas and oil prices, which can be very volatile.

Industry size & Structure

A typical oil and gas drilling company operates from 1-2 locations and has annual revenues of $10-11 million.

    • There are about 1,700 firms providing drilling services in the US that employ 69,000 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 Nobel Corporation.
    • Major suppliers are oil and gas service companies, such as 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 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
                              Source: Vertical IQ and Inforum

                              Coronavirus Update

                              May 4, 2022 - New Drilling on Public Land
                              • The White House in April announced it will offer oil and gas companies drilling rights on federal land in at least eight states in June, Reuters reported. The announcement came after the US Department of Interior said it would resume oil and gas lease sales on public lands, a move that clashes with a pledge President Joe Biden made while campaigning for the White House. In the largest planned sale, the Bureau of Land Management (BLM) said it will offer 131,771 acres (53,326 hectares) to oil and gas companies in Wyoming. BLM had originally evaluated auctioning more than 550,000 acres in the state. The Wyoming sale, which will be held on June 21 and 22, accounts for more than 90% of the 144,000 acres the agency will offer during the month, according to Reuters.
                              • Forecasters are predicting another active hurricane season for the US in 2022, with 19 named storms, about five more than the historic average, with nine of those becoming hurricanes and four of those spinning into major hurricanes. For oil and gas interests in the Gulf of Mexico, experts forecast a 46% chance of at least one major storm making landfall from the Florida Panhandle to Brownsville, Texas. The historic average for the past century has been 30%. For the entire US coastline, hurricane experts at Colorado State University are predicting a 71% chance of a major storm making landfall, up almost 20% over the average for the last 100 years. Hurricanes are a major threat to oil and gas drillers. In August 2021, Hurricane Ida, a category 4 storm, caused an estimated $75.25 billion in damages, making it the fifth-costliest hurricane on record. The storm shut down much of the region’s oil and gas production for weeks, according to the Journal of Petroleum Technology. If the forecast bears out, 2022 will be the seventh straight above-average hurricane season.
                              • As oil prices remained above $100 in late March 2022, President Biden announced the release of 1 million barrels per day from the US Strategic Oil Reserve for six months, an unprecedented volume, according to the White House. The government will use revenue from the sale of the oil to purchase future supplies from producers and restore reserves.
                              • The number of oil rigs in operation is rebounding. The US rig count as of April 1, 2022, was 673, 5 higher than the prior week and up from 430 from a year earlier, according to Baker Hughes Rig Count. Rig counts have gradually ticked upward as oil prices have improved, especially in the Permian Basin. About 80% of rigs produce oil and 20% produce natural gas.
                              • US crude production is forecast to return to pre-pandemic levels, averaging 12 million barrels per day (b/d) in 2022 and 12.6 million b/d in 2023, up from 11.3 million b/d in 2020 when the pandemic reduced demand for transportation and fuel. In February 2022, the US Energy Information Agency’s (EIA) Short Term Energy Outlook forecast global petroleum and liquid fuels consumption in 2022 will rise by 3.5 million barrels per day and reach 100.6 million b/d, which would slightly exceed consumption levels in 2019.
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