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 1,545 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 1,545 firms providing drilling services in the US that employ 63,560 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
                              Source: Vertical IQ and Inforum

                              Recent Developments

                              Feb 23, 2024 - Producer Price Increases Eased in 2023
                              • Producer prices for oil and gas drilling services were relatively unchanged (up less than 1%) in December compared to a year ago after rising a hefty 18.7% in the previous annual comparison, according to the US Bureau of Labor Statistics. Meanwhile, employment by oil and gas extraction firms grew 1.5% last year while average industry wages hit a new high of $44.56 per hour in December, a 3.3% year-over-year change, per the BLS. Still, producer prices and oil and gas extraction employment remain below levels of a decade ago.
                              • 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 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.
                              • More than 190 countries at the United Nations climate conference – known as COP28 – in December signed on to a deal calling for “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner,” The Wall Street Journal reports. The agreement states the shift to clean energy for the global economy should accelerate this decade with the aim of net-zero greenhouse gas emissions by 2050, according to WSJ. It's the first time a U.N. climate agreement has called for governments to cut back on all fossil fuels and demonstrates a new determination by governments worldwide to cut fossil fuel consumption. Its supporters say it should accelerate the flow of private investment into clean energies and away from fossil-fuel production. The deal does not set a strict timeline for transitioning and endorses carbon capture and storage technology, giving the oil and gas industry some leeway to comply.
                              • Hydrogen produced by natural processes in the Earth’s crust has the potential to fuel a green energy revolution, The Wall Street Journal reports. The resulting hydrogen gas – so-called geologic hydrogen – can be extracted by traditional drilling methods. Drilling firms and geologists say they’ve found underground hydrogen coming from old gas wells, seeping from unusual circular surface features known as “fairy circles,” and percolating from mid-ocean ridges, reports WSJ. Colorado-based Natural Hydrogen Energy LLC is drilling for natural hydrogen at a well in Nebraska. Hydrogen is potentially valuable as a clean fuel because hydrogen combustion produces only heat and water, unlike fossil fuels that produce greenhouse gases, according to the Department of Energy. Underground hydrogen “is a cheap, clean, abundant resource that is a game changer for the global economy and for climate change,” says Michael Webber, professor of energy resources at the University of Texas.
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