Rig shortage hits Rockies

[TransitJohn]

By DUSTIN BLEIZEFFER
Star-Tribune energy reporter Friday, August 26, 2005

GILLETTE -- Rocky Mountain oil and gas operators are in a mad scramble to pull in drilling rigs from all corners of the nation, and at the same time fill a major labor gap needed to run the rigs.

One Denver-based company that sells drilling rigs said it will bring in up to 12 rigs from China in the next two years. Along with the first two or three rigs will come a few Chinese "manufacturer's technicians" to help familiarize local drillers with the new equipment.
**snip**
An industry analyst for Raymond James & Associates Inc. estimates the United States will need 850 new rigs in the next five years -- that's more than 50 percent beyond the current 1,433 rigs at work in the nation. Just during the past year, demand for rigs has pushed daily rates from about $8,500 to $14,000 and more.

Fladeland said Patterson Drilling had 20 rigs sinking steel in the Rockies in December 2004. Now, it has 35 active rigs, and it expects to have 42 by the end of the year.
More......
http://www.casperstartribune.net/articles/2005/08/26/news/cadfdeca2063620d87257068007c8ace.txt

[sam sarrha]

1. they have been drilling and capping for decades..I know drillers, they say

they drill 24 hours a day, and cap everything for 30 years. I met a driller in Olympia WA that said he just drilled and capped 7 wells in Silverdale.. he had been drilling and capping in WA for years.. said there was oil everywhere.

he told me that we were going to use up the arabs oil then charge us "Peak Oil".. i remember the term from 10 years ago, prices for what we have here, and we have a lot more than the arabs ever thought they did.

soon there will be a series of little inflation and recessions to put the Working class into higher TAX bracket... to raise taxes without increasing our purchasing power.. so the rich can get richer an not pay taxes.

[Dogmudgeon]

4. That may not happen

First of all -- and I may be wrong on this -- we have a lot of little oil fields, but all together, we're in the same boat as the Saudis. Drill-and-cap may give us an edge for a few years after the middle-eastern fields become unprofitable, but I don't think it's a sure-fire way out of the mess.

There are going to be some major changes made in this country. Whether we do them systematically and rationally, or convulsively and painfully, they will be made. As soon as gasoline hits about $5/gal., the point at which minimum-wage workers can not afford gasoline, the pressure will be on the labor market.

But I am under no illusions about big business, especially the oil biz. They have about as much concern for the overall health of the nation and world as heroin pushers have for their clientele.

--p!

[hunter]

2. This is not good news.

This is the behavior of a crack addict desperately crawling across the carpet looking for any crystals he may have dropped.

Does it bother anyone else that we are importing Chinese equipment and technical expertise?

[phantom power]

3. It bothers me. But does it bother anybody in charge?

And of the few congressmen who seem to get that we've got a problem, they appear to be essentially ignorant of all the possible solutions.

This business of Schweitzer and Fischer-Tropsch fuel is an example. I give him props for behaving like we've got a problem to solve, but that's a lousy solution.

My dad was once in the NY state legislature, and he spent a bit of time in D.C. on state business. He likes to tell a story about what he observed in our mighty halls of congress. He was standing in the hallways, waiting for his appointment, and he sees a couple congressmen in the hall, on their way to the floor to some vote or other. And each of these guys has an aide, walking along side him and speaking into his ear. I don't think my dad ever actually heard what was being said, but he swears to this day that the aides were telling the congressmen what vote was up, and how they were going to vote on it.

These guys don't actually know anything. The story we're taught in grade-school about congress learnedly discussing the issues of the day, and voting based on their best understanding of what's going on, is complete crap. If anybody is in charge at all, maybe it's their staff, who actually tell them what to do.

I'm guessing some coal-lobbyist met with one of Schweitzer's aids, and told him that this was a great solution. And what would the aid know about it? Or Schweitzer?

Anyway, probably not news to anybody, but I thought it was a good story.

[dcfirefighter]

5. Witholding natural resources for speculative gain

is a, if not the, root cause of the business cycle.

If they're drilling on federal land, it's our oil. If not, the states have a right to their natural commonwealth. They should raise taxes on the land over the oil - make the owners pay a 'user fee' for the legal exclusion of others.

See my post on LVT.

[hunter]

6. Well yes, but these are not huge oil fields

Withholding this small resource does not really affect the price of oil.

A former classmate of mine makes a decent but not extravagant living tapping coal bed methane. (And yes, before you say anything, I know these guys are reviled in many places for messing up the water and tearing up the landscape.)

But coal bed methane is not a huge resource, it accounts for maybe 7% of U.S. natural gas production. The price consumers pay for natural gas is not greatly influenced by coal bed methane production.

Anecdotal stories of oil wells being drilled and capped off are often passed around as a way of reassuring people that everything is all right, that there's still plenty of oil in the ground. But that's not true. A small oil or coal bed methane field in the Rocky Mountain is nothing like the huge oil and gas fields we have tapped in Saudi Arabia, the North Sea, and so on.

All of the huge oil fields in the continental United States have probably been found and mostly drained. U.S. production peaked in the 'seventies, and now we face diminishing returns no matter how many holes we drill, no matter how many people like my former classmate swarm out into the field.

If someone out there is drilling holes and capping them off in the hopes of making money as the price of oil goes up, it is probably of no consequence to the overall price of oil. We cannot significantly reduce the price of oil by increasing U.S. production. We passed that point long ago when we foolishly elected Ronald Reagan as our president.

[dcfirefighter]

7. Commodity prices are set at the margin of production.

(economic shennanigans aside)

Oil trades at $66/bbl regardless of the cost of extracting the individual barrel of oil. Put another way, even oil that cost $44 to extract trades at $66. The $66 is the price of the most expensive barrel on the market. So, if another 1% of the oil supply can be extracted at $65, prices will go down to $65.

[hunter]

8. Economists have a remarkable ability to boil statistics down...

...far past the point where they have any meaning.

It takes just a few seconds to find the percentage of the nation's natural gas supply supplied by each state, and just a few seconds to learn that there are over 8000 producers of natural gas, but it's almost impossible to untangle the pricing structure. It's a big poker game of political and economic muscle. Most of the cards are hidden, and bluffing and cheating are common.

Larger players have more political and economic power than the public agencies that are supposed to regulate them. I can't even count the number of public hearings I've seen where energy industry representitives flat out lie without any consequence.

To suggest that such markets conform to simple economic models is unreasonable.

[Oerdin]

9. Most of our oil fields are high cost fields.

West Texas, Alaska's north slope, and the gulf coast are notable exceptions but other areas (the rockies, California, Pennsylvania) tend to have thicker heavier crudes which often are "sour" or contain hydrogen sulfide which greatly increases refining costs. The wells get capped because at the time they couldn't produce profitabely but now prices have shot up and people want to put rigs on capped wells.

The high prices will convince companies to start production on marginal wells so this should moderate future price increases. The bad news is the long term trend is still higher even if it won't go higher quite as fast.

[TransitJohn]

10. Point of clarification

I am a wellsite geologist in Wyoming. 90% of all rigs in the region are drilling gas, not oil. FYI.