HOUSTON — Oil companies are shelling out more cash and signing long contracts for a limited supply of monster rigs that drill wells much faster than the older models that led the U.S. first shale boom.

The Houston Chronicle reports some rig suppliers have recently signed 18-month and two-year contracts for these so-called super-spec rigs, collecting up to 20 percent more in daily rates as U.S. producers scramble to lock down the most efficient rigs in the nation’s fleet.

Earlier this year, oil producers had resisted entering higher-priced long-term contracts, but these new agreements with Houston’s Nabors Industries and others signal oil field contractors have regained some clout in a market that earlier forced deep discounts, squeezed profit margins and forced them to cut thousands of jobs during the oil downturn.

“Every single one of the super-spec rigs that can work is working today,” James West, an analyst at investment bank Evercore ISI in New York, said in an interview. “Now we’re seeing that exploration and production companies can’t get these rigs if they don’t sign contracts.”

Rig contractors have dispatched hundreds of these machines across the country in a record 23-week upward streak in the U.S. rig count this year, which ended June 30 as the count fell by one to 940, according to the Houston oil services giant Baker Hughes. In recent weeks, oil prices have fallen to around $45 a barrel, which may discourage shale drillers from bringing on additional rigs.

If oil stays cheap, the nation’s rig count could drop about 20 percent next year from an expected 1,000 at the end of 2017.

But even then, oil companies aren’t likely to give up the super-spec rigs that can drill a well in less than 10 days, shaving more than a week from the average drilling time in 2010.

“It’s all about efficiency,” West said.

Investors coined the term “super-spec rigs” last summer when these powerful, upgraded machines first emerged with the capacity to load 750,000 pounds of pipe – the weight of a fully loaded Boeing 747 – and drilling systems with 1,500 horsepower, more powerful than the roaring engines of two semi-trucks.

Houston rig contractor Patterson-UTI Energy, which has already deployed all of its super-spec rigs, has set aside $145 million this year to upgrade other machines in its fleet. And as drilling activity has surged in West Texas and other spots, Patterson has hired almost 4,000 new workers since January for both its drilling business and its pressure pumping segment, which includes hydraulic fracturing.

Xtreme Drilling Corp., a Canadian rig supplier, recently said it’s locked in more than $24 million in revenue over the next year with three contracts for upgraded super-spec rigs, pushing the rig day rates toward $22,000 a day.

And Nabors Industries, a Houston rig contractor, recently said it has contracted some super-spec drilling rigs at prices of up to $23,500 a day, almost 20 percent higher than spot rates in places like the Permian Basin and the Eagle Ford Shale.

Oklahoma-based Helmerich & Payne, the largest U.S. rig contractor, said late last month spot prices for high-performance rigs topped out around $19,000 to $20,000 a day.

Matt Porter, president and CEO of Xtreme, said the higher rates his company has gotten for super-spec contracts show operators will pay a premium for more efficient drilling even though oil prices have slumped in recent weeks.


Information from: Houston Chronicle, http://www.houstonchronicle.com

This is an AP Member Exchange shared by the Houston Chronicle