We recently highlighted the bifurcation of most oilfield product service markets, that most had a two tier revenue structure – big versus small, and lots of revenue per day versus small amounts of revenue per day. We looked at land contract drilling to identify just how different big is from small:
A big land drilling rig in North America earns about $25,000 per day and generates about $2.25 million in revenues per quarter. Do the math and that reveals that the typical big drilling rig is working (and being paid for!) 90 days per quarter – 100% utilization.
These big drilling rigs are on multiple well pads, skidding back and forth between 3-5 wells, always productive, always advancing the length of wellbores. These rigs have high pressure mud pumps, top drives, automation, communication… kitted out with the best gear available.
On the other hand, a smaller land drilling rig in North America earns about $17,000 per day and generates about $1.4 million during the quarter. That smaller rig is being paid for 80 days per quarter — 90% utilization.
The small rig has a few mud pumps, probably has a top drive, and might be able to skid or walk between well centers; but this rig is most likely drilling one well per pad and, therefore, is moving from pad to pad every few weeks. This rig is not being paid for every day of the quarter.
Perhaps a big land rig and a smaller land rig are capable of drilling the exact same wellbore, but the difference is found in each rig’s efficiency or productivity. High productivity = high compensation; low productivity = low compensation. Just like in real life.
Precision, H&P, and Independence – these are the type of drilling contractors who get well compensated for high utilization operations.