SIC 1381 Drilling Oil and Gas Wells
SIC 1381
This category includes establishments primarily engaged in drilling wells for oil and gas field operations for others on a contract or fee basis. This industry includes contractors that specialize in spudding, drilling, redrilling, and directional drilling.
213111
Drilling Oil and Gas Wells
Oil and natural gas drilling is expected to be a growing industry during the 2000s. In the late 1990s, worldwide production increases led to a glut of oil and natural gas on the market, which resulted in price declines. Consequently, many wells were idled. In the early 2000s, with demand once again pushing supply, drilling companies were undertaking new drilling opportunities as well as refurbishing idled drills to get them running again.
Drilling is an inherently volatile business that follows trends in the overall worldwide oil and natural gas markets. Rising oil and gas prices in 2001 led to nearly 1,300 active wells, the highest count since 1986. Within the following nine months, well activity plummeted 43 percent, to 743 active wells in April 2002. By mid-2003, active well totals approached 850. Because 80 percent of all U.S. drilling is related to natural gas, natural gas prices are expected to dictate drilling activity, which is primarily inland based.
During 2004, rising oil and natural gas prices led to the total number of active wells reaching 1,032. The surge in natural gas prompted the federal government to issue 6,000 oil and gas permits, which was 59 percent higher than 2003. That led to a 40 percent increase of gas extracted from federal lands, or 3.1 trillion cubic feet. That trend continued into 2005 with 1,327 active wells reported by the American Petroleum Institute in March of 2005. That number increased slightly to 1,348 by April 15, 2005, up from 1,150 active wells during the same time the prior year. Inland based wells represented the majority, with 1,221. The trend was expected to continue until supply caught up with demand.
According to industry statistics, there were approximately 2,275 establishments engaged in drilling wells for oil and gas field operations in 2005, employing about 53,694 workers. Total industry revenues were an estimated $24,447.60 million.
In the mid-1980s when Saudi Arabian crude oil flooded the market, the price of crude oil fell to $10 a barrel. U.S. crude oil producers were hurt, but the rest of the domestic industry remained profitable, primarily due to strong consumption rates for refined petroleum products and chemical sales. The operators and producers of crude oil who survived the 1980s confronted an industry-wide collapse in 1991 and 1992.
The fall of natural gas prices sent the rig count plummeting to the lowest number in 50 years with drillers affected the most. Intense gasoline price competition led to the collapse of refining and marketing margins. An economic slump in the United States and a surplus of gas also contributed to weak prices.
Industry analysts continued to offer conflicting views regarding the future of the oil and gas industry through the mid-1990s, predicting eventual recovery, little or no recovery, or growth in the natural gas sector only. For the drilling sector of the industry, economic recovery was contingent on many factors, all related to the supply and demand for oil and its related products. Various indicators included economic growth in the United States, consumption rates, oil and gas prices, Organization of Petroleum Exporting Countries (OPEC) production and export rates, and the development of new markets for exploration.
Earlier in the 1990s, Standard & Poor's (S&P) anticipated U.S. oil consumption to approximate one-half of real growth in gross domestic product (GDP). With long-term real GDP growth forecast at 2.5 percent annually, S&P predicted oil consumption to increase approximately 1 percent annually during the 1990s. Oil consumption did, in fact, rise from 17.979 million barrels a day in 1992 to 19.653 million barrels a day in 1999.
Gasoline consumption remained the largest component of total domestic petroleum use, with home heating oil in second place. Market analysts asserted that as Americans purchased more sports vehicles, which consume more gasoline than conventional automobiles, U.S. consumption of gasoline would increase. Increased consumption was also attributed to industrial and utility users who had dual burning capacity and switched from heavy fuel to natural gas. Natural gas consumption increased 4 percent over 1992 to capture approximately 25 percent of the U.S. energy market in 1993.
Natural gas can be found by itself or in association with crude oil. Natural gas is one of the cleanest burning fuels, producing primarily carbon dioxide, water vapor, and small amounts of nitrogen oxides. Prices of natural gas averaged $1.86 per thousand cubic feet in 1992, up 13 percent from the 1991 average of $1.59. According to the Independent Petroleum Association of America (IPAA), 1991 prices were abnormally low due to the warmer weather and the early release of gas from storage. By 1997, however, prices had risen to $2.42. Preference for natural gas continued to grow throughout the 1990s. The IPAA projected an annual growth rate of 1.7 percent through 2010.
By late 1995 the natural gas industry faced numerous challenges attributable to increased demand for natural gas, limited sources of new gas supplies domestically and in Canada, and record low levels of gas storage. The industry also faced low average natural gas prices in 1995, which discouraged exploration drilling activity. As a result, producers cut capital expenditures, and productive capacity subsequently was reduced during the 1995-96 heating season. Although market analysts projected continued low capacity through 1997 and projected natural gas prices in major regional hubs to nearly double from 1995 prices, prices only rose to $2.42 per thousand cubic feet.
From 1989 through 1991, oil consumption fell. According to the Oil & Gas Journal, this continued decline was a result of a depressed level of drilling activity, the natural production decline rate of mature reservoirs, and a lack of access to prospective onshore and offshore areas. According to IPAA, crude oil production averaged 7.2 million barrels per day in 1992, which was the lowest level in 30 years. The trend continued and fell to 6.3 million barrels per day by 1998.
Oil prices averaged $12.12 per barrel in 1998, then rose to $17.21 in 1999, and the U.S. Department of Energy (DOE) projected that they would continue to rise to an average of $21.86 per barrel in 2000. Natural gas prices also rose from $2.38 per million BTU (British thermal unit) in 1998, to $2.64 in 1999, and were expected to rise to an average of $2.89 in 2000.
Perhaps reflecting the price increase in crude oil, the U.S. rig count rose to 763 in November 1999, compared to 696 in 1998. The Canadian rig count was 336 in 1999, almost double the 183 operating in 1998. Only international drilling activity showed a decrease from 724 rigs in September 1998, compared to 557 in September 1999.
Saudi Arabia was the dominant member of OPEC and maintained the highest share of OPEC oil export revenues. Other top OPEC oil exporters included Iran, Venezuela, Iraq, and Nigeria.
In the first half of the 1990s, U.S. exploration was centered in the Gulf of Mexico. As consumption of natural gas increased at the end of the twentieth century, companies continued to search for new sources of crude oil. Opportunities for international petroleum companies to explore, develop, and produce crude oil and natural gas in many areas of the world increased rapidly, particularly in the Asia-Pacific region.
Contract drilling firms work with the well operators. Operators are the companies that decide what kind of well to drill and determine its specifications. Operators hold the lease rights and operate the lease as well. According to the Fundamentals of Petroleum, almost 98 percent of all gas and oil wells in the United States were drilled by contract drilling firms. The drilling contractor usually is assisted by other companies, or subcontractors, that furnish specialized well services...
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