Carnduff – There hasn’t been a new drilling rig deployed in southeast Saskatchewan since 2014. One of the last rigs added to the fleet was Betts Drilling Rig 4. Pipeline News spoke to Bob Betts, general manager of Betts Drilling on July 27 about the pending need for the industry to recapitalize.
The summer drilling season started out alright for them, but when oil dropped below US$50, he said, “It slowed the projects for the summer right down. We had two rigs going, and one came in, and we have one out now.”
Since then, the pattern has continued throughout the end of summer. In late September, a second rig went out.
Asked when was the last time Betts Drilling bought any new iron, he replied, “I bought a pump this year, only because it was going to help me get more work, and I did get the job with it. It was a second pump.”
One of their pickups has 300,000 kilometres on it, and his has 205,000. They used to get rid of them at 200,000, because you could still get some trade-in value for them, but now they’re going to drive them as long as they can.
No one really’s been able to make munch money in the oilpatch in recent years, and the insolvency of Vortex Drilling, just before this interview took place, was of high interest in the drilling community. Betts said, “I think Vortex has probably started it, and now that it’s done there, I think the house of cards maybe starting fall, a little bit. You’ll find the weak guys starting to drop here. It’s gotta be close.
“We’re good for now. I’d like to have two rigs running. I don’t know how much longer we can go (with one rig.) Two years, we probably couldn’t. I think I could do another one year storm, from now, this say this time in summer to next summer. But after that, it gets to the point where, do you stay in the game?”
Most of the independent drillers in Saskatchewan with three or four rigs have only had one rig working at a time throughout the summer, according to Rig Locator. Some have had two, but some have had none.
With the Vortex rigs on the market at the time of the interview, he said he was thinking about them, but then he’d have more derricks standing in the yard with no work. One of the Vortex was parked in the yard next door to the Betts shop.
“If times were right, and I had work for them, it would be a no-brainer. I’d definitely go after them,” he said.
He noted that if the independents like himself, with many years experience drilling in the region, have trouble finding work, he can’t imagine a new guy picking up those rigs and finding work for them. “I don’t think any investors would invest with you,” Betts said.
Indeed, most of this summer, Saskatchewan’s rig count, according to Rig Locator, has seen roughly one third, or less, of the 120 rigs in the province working.
Looking towards the end of the year, he said, “The fourth quarter looks really good,” adding companies are looking to spend the rest of their budget.
“From what I’m hearing, everybody wants oil over US$50,” he noted. In mid-September, the benchmark West Texas Intermediate crossed that threshold.
Day rates are a big factor for drillers. The court paperwork from the Vortex insolvency noted day rates for that company had gone from $16,000 a day to under $7,000 a day, a primary reason they went under.
Betts has heard of rates as low as $8,700 per day, as they were asked to match that. “I did the math. There’s now way I could do it. It be committing would be suicide for my company,” he said.
Even at rates a bit above that, it’s still tough. “You’re not putting away for a Level IV. We’ve gone a Level IV coming up that’s roughly $300,000.”
Drilling rigs are required to undergo a comprehensive Level IV inspection every 1,000 operating days. It involves tearing apart much of the rig, inspecting welds and basically bringing it up to like-new status. It often involves sandblasting and painting. Pipeline Newshas heard various from numerous drillers that the cost can range from as little as $150,000 to as much as $500,000, or more.
“It’s going to catch up sooner or later. It’s going to be a lot of expenses for a lot of companies. Whether they have to go back out and raise capital to certify their equipment, I don’t know. It would be really tough to go to a bank with oil under US$50 and get loans to do Level IVs and replace engines on your equipment.
“To do a Level IV, we usually sandblast the substructure, sandblast the derrick. The blocks, crown, are sandblasted and torn apart. Now I’m hearing you can get away without sandblasting. If they’ll let us do that, you’ll see a lot of guys running it with the same paint for another five years. That would bring the cost of Level IVs tremendously.”
Blowout preventer systems (BOPS) need to be recertified every three calendar years, whether the rig is working or sitting. If you look after it, the average recertification on a BOP is $60,000.
Are the day rates the oil companies are willing to pay enough to put away for these things? “Not right now,” Betts said. “Now there’s not enough to put away for a Level IV. There might be, if you’re working the rig steady, every day. I guess there’s a bunch of variables there.
“There’s really not enough to cover wear and tear on drill pipe, your Level IV recertification, your BOPS recert, wear and tear on the rig and breakdowns, replacing engines at 30,000 hours. A floor motor and a transmission on a teledouble is $250,000.”
Industry-wide, day rates are down roughly 30 per cent compare to where they were before the downturn hit, he said, adding rates would have to come up 30 per cent from where they are now to be able to put that money away for those big ticket issues.
Betts Drilling saw a fire destroy their shop and several of their loaders early in the year. Their shop is now nearing completion and they hope to move in in early November.
