Wednesday, August 3, 2016

Technology and the rig count

The Tribune ran an article today that had some really interesting observations about technology and the rig count. Something that those who are focused on the energy industry and employment should consider.

First will note what the Pew polls noted before the recent bust:
Workers in America’s oil and gas patches have enjoyed some of the country’s biggest gains in the buying power of their paychecks over the past decade and a half, while workers in several small and mid-sized manufacturing-oriented cities have watched their buying power shrink over the same time period.
That was great, of course, for the Wyoming economy.  Now we're in a huge slump, which of course is not so great.  We've been hearing a lot about "when it comes back", but perhaps we should be a bit careful.

First we will note what the Tribune noted:
The average rig count in Wyoming for July was eight. That’s the lowest anyone has seen it. It’s a fraction of July 2015’s average of 21, which was a record low, and the previous year’s 52.
That's a huge decline, so say the least; however:
But 7,364 barrels were produced this month in Wyoming, compared with 6,438 last July and 5,264 in 2013, according to the EIA’s data.
That's a bit surprising.  Apparently a lot of the new oil remains marketable.  Here's what is:
In a call with analysts last week, the CEO of Halliburton said the counting game has changed, as rigs operate with better productivity, speed and efficiency.
“In the next North America rig cycle, 900 is the new 2,000,” David Lesar said.
Wow, that's quite a change. . . and quite a change in employment, and even its nature as well.

These new rigs have been around for awhile.  An oddity of the North American boom recently is that a huge number of old rigs were put back in service, at least as first.  One long time hand I knew told me that he hated working in North America as compared to the Middle East, where he had been, as the rigs were all so low tech.  But as things advanced, that changed.  I'd been hearing more and more about the new high tech rigs, although I have yet to be on the floor of one yet.  All the ones I was on in the past few years were old style ones, and perhaps actually old ones.

When things come back, if they do, there will likely be enough of the newer rigs around that what  David Lesar reported to the Tribune will be correct, or become correct.  And as that becomes true, what that means is that employment in the oil patch will not resume its former levels.  And a lot of other things will be different as well.  A person from the Oil and Gas Commission reported to the Tribune that:  "In my time, it took us six months to drill 10,000 feet. Now a rig can do that in a week and a half".  Quite the change.

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