The exploration and production industry is planning a major ramp in drilling activity in 2010, as it positions itself to take advantage of anticipated higher demand due to an improving economy and hopefully higher natural gas prices.
Many of the companies have not yet set official capital budgets for 2010, but a look at management commentary during third-quarter earnings season indicates that a higher level of activity is in the works.
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Companies Adding Rigs
Devon Energy (NYSE: DVN) is one of the companies planning to add rigs in 2010. "We are currently adding drilling rigs in our major shale development plays and will continue to do so in 2010," said Larry Nichols, CEO. In the Barnett Shale, the company is moving from seven current operated rigs to 16 in 2010. In the Woodford Shale, Devon Energy is increasing its rig count from two to five.
Devon Energy is also accelerating its activity on wells that have been drilled but not yet completed. The company has an inventory of 159 wells awaiting completion as of September 30.
Petrohawk Energy (NYSE: HK) also plans to ramp up activity in several shale plays. The company averaged 11 operated rigs in 2009 and plans to average 16 in 2010. The company will add rigs to its acreage in the Haynesville and Eagle Ford shales.
XTO Energy (NYSE: XTO) currently operates 47 rigs across its acreage and plans to increase that number in many shale plays. XTO Energy will increase its five rigs in the Haynesville Shale to "double digits" in 2010. In the Marcellus Shale, the company will double its rig count from two to four. The Bakken Shale will also move higher, from three to six.
Working Rigs Increasing Since July Bottom
The land rig count bottomed in July and has built slowly over the last few months, as the credit panic in the oil patch subsided. This can be seen in the latest utilization report from Patterson-UTI Energy (Nasdaq: PTEN) for October, which showed the company averaged 88 rigs working. In August, the company averaged 72 rigs working.
The higher rig activity won't cost as much as it did several years back due to the large decline in costs for rigs and services.
Also, investors should watch out for a double dip in the economic cycle, which might cause the industry to reconsider the higher drilling activity.
Energy Cycle May Accelerate In 2010
The energy industry is deeply cyclical, which many investors found out the hard way last year. The latest evidence suggests that the cycle is moving from a tepid recovery to one that may accelerate sharply in 2010. (To learn more, read Oil And Gas Industry Primer.)
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