In the ongoing effort to save money amidst the oil price slump, rig owners have taken to “cannibalizing” parts like motors and drill pipe from stacked rigs, according to Reuters.
To make repairs on the 800 some drilling rigs active in the U.S., equipment is being scavenged from the 1,100 rigs which were idled due to the price crash. The practice has become so widespread during this downturn that services companies and others are saying that even if prices were to make a significant rebound, it would be over six months before drilling and production would increase, an idea which has quelled concerns about another surge of activity driving prices down again.
As reported by Reuters, in a stable and high oil price environment, spare and replacement parts are typically purchased new from companies such as National Oilwell Varco (NOV) and Premium Oilfield Technologies, a small operation which makes equipment and spare parts for drilling rigs active in North Dakota to Texas.
NOV said there are currently enough rigs stacked that drill pipe could be cannibalized for up to a year before needing to place new orders. An oilfield services analyst told Reuters, “[Cannibalization] will slow the industry’s ability to ramp the rig count back up so it will delay the production response from oil prices.”
Although there is no hard data for the extent of cannibalization, the practice has become so commonplace that experts say there is a high possibility that the majority of the 1,100 inactive rigs have already been harvested for parts. Spare parts from idled drilling rigs have become so readily available due to an almost 15-year record high before oil prices began to plummet.
NOV Senior Vice President of Technology and Product Development Grant Almond told Reuters, “Cannibalizing is not an uncommon practice in the industry, and more so on land than offshore, but it has gone up in the downturn because more rigs are being retired or idled now.” Most parts are indeed coming from onshore rigs, however, offshore driller Noble Corp, for example, recently used a helipad and the floor from a worker’s cabin from a rig scheduled to be decommissioned and repurposed the parts to improve a rig being used by Hess Corp.
Meanwhile, investors have been urging companies to harvest more parts from more rigs to slow the decline of drilling rig daily rental rates. A portfolio manager from Tortoise Capital Advisors told Reuters, “Companies have to continue to scrap idle rigs and do all that they can to balance supply with demand.” Although a rebound in orders for new replacement parts is anticipated to follow an uptick in drilling activity, some services providers have taken their business overseas to escape the currently tumultuous U.S. shale markets. To read the full article, click here.