2019 will probably see a record number of feet drilled directionally in the US even though new well drilling will fall by about 5% from last year’s record year. Put away the champagne and stow the party favors, because that isn’t good news for folks in the directional drilling business. Consider the following graph:
I was driving away from a meeting in Conroe recently, frustrated that a company I’m working with was sold out (and probably setting drilling records most months), but its revenues and earnings were not reflecting those successes. So I dialed up my friend who I’ll call “Mr. P” because Mr. P has drilled WAY more wells directionally than most of us will ever dream of drilling. He walked me through the following logic:
Directional services are typically billed by the day, no matter how many or how few feet the directional tools might drill that day.
Drilling speeds are WAY faster than ever before because the drilling manager of the oil company is typically incentivized for speed, not quality of well. And with oil company budgets being slashed, the pressure to drill faster and save money is greater today than ever before.
Horizontal wells are all trending toward 10,000’+ laterals, with directional tools often launched below the conductor pipe, i.e. a thousand feet or so below ground level. This means a 22,000’ measured depth horizontal well might have 18,000’ of directional work.
Faster drilling – especially in hot holes – tears up directional equipment like never before and often that repair cost is forced on the directional company because it looks like a premature tool failure.
As a result, here’s some rough math to compare 2018 to 2019 in the world of US land directional drilling:
2018: 18,000 directional wells, 225M directional feet, $3.4B spent on directional drilling services
2019: 17,000 directional wells, 250M directional feet, $3.0B spent on directional drilling services
We don’t see a trajectory change in this environment in 2020… for the US market. Here’s what we do imagine, however: For the larger directional companies who have international operations, the growing drilling market outside North America is going to lure the top service companies away from money-losing US wells and toward shareholder-friendly international and offshore opportunities. This will starve the US market for directional investment, equipment, and people when the next upturn happens.
By the way, when we say “directional drilling services” we mean everything associated with the job – motor, MWD (telemetry and gamma), RSS, people, logistics, repairs, and damaged-beyond-repair charges. Our directional market research hand is David Hutchison, who has been on directional wells from Sakhalin Island to Angola to Qatar to Pearsall, Texas over the last 40 years. He updates our directional drilling market evaluation each quarter.