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The art of deconstructing rig counts

Have you ever wondered what a rig count really means? Since they’re used in a multitude of ways, it’s important to know what the numbers can really say.

The major player in rig counting is the oil services company, Baker Hughes, which has been tallying rigs since 1944 and counting. The rig count as reported by Baker Hughes is “a weekly census of the number of drilling rigs actively exploring or developing oil or natural gas in the United States and Canada.” Just because a rig is included in the count, though, does not mean it is producing oil or gas. In fact, it might even end up with the status of a “dry hole,” meaning no production will take place at the well.

Let’s start with what rig counts don’t tell us. Melissa Breener writes in the Louisiana DNR Rig Count that counts are unable to reveal production, drilling success rate and depth, cost, geology, location and economic potential. “Rig count can tell us that wells are being drilled, but not how many will actually produce once drilling is complete.” In fact, as Breener states, “The deeper a rig has to drill, the longer it will be on location and active.”

Drilling cost is as important as it is complex. Breener points out that “Average costs are generally measured in cost per foot and vary by region and depth. The cost of drilling escalates with depth, both the average cost per foot to a total depth, and the incremental cost per incremental foot drilled. Also, with depth comes higher subsurface temperatures and pressures which can create the need for more costly safety measures and equipment.” Drilling deeper requires rigs with deep drilling capacity that are in limited supply. This leads to additional costs, as does the hardness of the rock being drilled and local flora and fauna in need of extra care and attention.

Then of course, there is the information that rig counts do provide. Breener reports that “rig count succeeds in communicating drilling activity, modeling the petroleum job market, and predicting the demand for oilfield service.”

However, Breener cautions against using rig counts to speak of actual production or future production, suggesting instead that a parameter giving “units of production per rig, per dollar of cost” would be more beneficial for determining oil or gas well production.

In related news, US oil output prevails through sinking rig counts.

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