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 1,700 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.

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

                              Recent Developments

                              Mar 14, 2023 - Permian Basin Production Plateaus
                              • The biggest and best wells drilled by US shale companies in the Permian Basin are producing less oil, an indication that producers may have drilled through much of their best wells, The Wall Street Journal reported in March. Oil production from the best 10% of wells drilled in the Delaware portion of the Permian was 15% lower in 2022, on average, than top 2017 wells, according to data from analytics firm FLOW Partners cited by WSJ. Moreover, the average well put out 6% less oil than the prior year, according to an analysis from analytics firm Novi Labs. Evidence that the US shale boom shows signs of peaking has major implications for the global oil market, which has relied on rapidly growing US oil production to blunt the effects of supply disruptions and rising demand, and would increase reliance on Middle Eastern crude in the future.
                              • The Biden administration in March approved a controversial $8 billion oil drilling project in the North Slope of Alaska, CNN reports. The Willow project is an oil drilling venture in the National Petroleum Reserve (NPR), which is owned by the federal government. The area where the project is planned holds up to 600 million barrels of oil, though that oil would take years to reach the market since the project has yet to be constructed, according to CNN. By the administration’s own estimates, the project would generate enough oil to release 9.2 million metric tons of planet-warming carbon pollution a year – equivalent to adding 2 million gas-powered cars to the roads. The NPR, which has no roads, is the country’s largest single expanse of pristine land. The administration’s decision has angered climate activists and is expected to be challenged in court.
                              • Global demand for oil is expected to increase this year driven by stronger-than-expected economic growth in the US, Europe and China’s reopening, The Wall Street Journal reports. The Organization of the Petroleum Exporting Countries (OPEC) in its February monthly report increased its prediction for global oil demand growth this year by 100,000 barrels a day. The cartel raised its prediction for global economic growth in 2023 to 2.6%, from a previous forecast of 2.5% citing strong consumer spending and signs that inflation is easing. OPEC also raised its 2023 China growth forecast to 5.2% from 4.8%. Meanwhile, the oil producers group lowered its forecast for Russian oil production this year by 50,000 barrels a day to 10.13 million barrels a day.
                              • Flush with cash from windfall profits fueled by high energy prices, oil and gas drillers have paid down billions of dollars in debt since the start of the coronavirus pandemic, The Wall Street Journal reports. Between the third quarters of 2019 and 2022, the 10 largest independent oil and gas producers by market capitalization had collectively reduced their total debt by roughly 17%, down to $84 billion, according to FactSet. By paying down their enormous debt loads, the industry has positioned itself to weather future downturns and rising interest rates. The energy sector’s deleveraging is a response to demands from banks and investors to use their windfall profits to reduce debt and return capital to shareholders rather than plow funds into new production. Most large oil producers have set production growth targets that don’t exceed 5% for 2023, according to WSJ.
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