Drillers spend on costly 'walking' rigs to lure customers

CWC Energy Services

26/08/2015 17:28

By Sneha Banerjee and Swetha Gopinath 
    Aug 26 (Reuters) - North American onshore rig contractors 
are spending millions of dollars to add costly "walking" rigs to 
their fleet, a move that may seem counterintuitive at a time 
when the slump in crude prices shows no signs of abating. 
    Such rigs "walk" from wellbore to wellbore, unlike a regular 
rig that has to be taken apart and reassembled for each move, 
and save shale producers time and money - as much as 30 percent 
of the cost to drill a well. 
    Even though the returns on these investments will not be 
immediate, rig contractors such as Patterson-UTI Energy Inc 
 PTEN.O  and Pioneer Energy Services  PES.N  are pandering to 
the demand for these rigs. 
    They are banking not only on demand increasing for walking 
rigs, but also on rates picking up, once oil prices recover. 
    Demand for rigs have taken a walloping, as oil producers 
have slammed the brakes on drilling new wells to cope with a 28 
percent decline in U.S. crude  CLc1  prices this year. 
    "As activity starts picking up again, the majority of 
requests from operators, I think, will be for pad-oriented 
rigs," said Pioneer Energy CEO Stacy Locke, referring to the 
popular practice of drilling several wells in one location. 
    This promise of higher demand and better rates has led rig 
contractors to either build new walking rigs or spend $1 million 
to $2 million to attach giant hydraulic walking systems on their 
regular rigs. 
    It costs $20 million to $25 million to build a new walking 
rig, according to Evercore ISI analyst James West. A regular rig 
used to cost $10 million to $15 million a decade ago and no one 
has built one recently, he said. 
    Before oil prices slumped, walking rigs commanded $27,000 to 
$30,000 per day, compared with $22,000 to $25,000 for a regular 
rig. 
    A walking rig can move from one wellbore to another rather 
quickly - 10 meters in less than an hour. Moving a regular rig 
can take days and cost up to $1 million. 
    The allure of such savings is hard for shale producers to 
pass up. 
    Producers such as EQT Corp  EQT.N  and Laredo Petroleum Inc 
 LPI.N  are increasingly opting for pad drilling and prefer 
walking rigs. 
    CWC Energy Services Corp  CWC.V  had to put a walking system 
on one of its nine rigs because a customer demanded it, CWC CEO 
Duncan Au said. 
             
    SLOW RETURNS 
    While savings for a shale producer is immediate, it will 
take quite some time for a rig contractor to get significant 
returns on their investment. 
    "For the rigs that we are building this year, the payback is 
between four and five years," Patterson Chief Executive William 
Hendricks told Reuters. 
    The payback on a new walking rig is three years in a normal 
demand environment, and between six and nine months on a rig 
refurbished with a walking system, according to Wunderlich 
Securities analyst Jason Wangler. 
    Still, Patterson, one of the top five contractors in North 
America based on its hi-spec rig fleet, plans to build 16 
high-tech Apex rigs this year. Of those, 15 will be able to 
walk. It already has more than 100 walking rigs in its fleet of 
159. 
    Rates for all rigs have collapsed by as much as 50 percent 
in the past year, according to Evercore's West. 
    "In a market as bad as this, all kinds of rigs kind of get 
bunched up at really low rates," said Pioneer Energy's Locke. 
    About two-thirds of Pioneer Energy's 36-rig fleet is now 
capable of pad drilling. Of them, 24 are walking rigs. The 
company plans to add another three by the end of the year. 
    Independence Contract Drilling Inc  ICD.N  has 14 rigs and 
plans to upgrade its last non-walking rig by the end of the 
year. 
 
 (Editing by Sayantani Ghosh and Savio D'Souza) 
 ((sayantani.ghosh@thomsonreuters.com; within U.S. +1 646 223 
8780, outside U.S. +91 80 6749 1130; Reuters Messaging: 
sayantani.ghosh.thomsonreuters.com@reuters.net)) 
 
Keywords: DRILLING RIGS/