BRIEF-Elbit Imaging posts Q3 revenue ILS 61 million, raises doubts about Plaza Centers ability to continue as a going concern
* Elbit Imaging Ltd. Announces third quarter results for 2016
By John Kemp
LONDON Dec 10 North American oil and gas production is on the verge of another revolution as older drilling rigs are replaced by equipment that can drill the same well in half the time and bore much longer horizontal sections underground.
The number of land-based rigs drilling for oil and gas in the United States has fallen 12 percent since November 2011, according to oilfield services company Baker Hughes International.
The drilling of new wells is sensitive to forecast oil and gas prices. Slumping gas prices over the past year have resulted in a sharp drop in the number of rigs employed. Some rigs have been shifted to oil or liquid-rich "wet" gas plays, while more than 200 mostly older ones have been idled over the past 12 months.
In a sign of the coming industry-wide rationalisation, Precision Drilling, one of the largest drillers in North America, announced on Monday it was decommissioning 42 of its older tier-3 drilling rigs and another 10 tier-2 machines. The company plans to exit the tier-3 contract drilling market altogether as it refocuses its operations on the more profitable tier 1 and 2 markets.
Crude rig counts tell only half the story, however. New technology and the development of standardised "assembly-line" or "factory" drilling practices mean the industry can now drill more wells faster and with fewer machines - slashing costs and lowering the breakeven price for U.S. and Canadian producers.
Most oil analysts still focus exclusively on rig counts, but counts are misleading when the rig fleet is changing rapidly. Relying on these raw figures has caused many oil analysts to underestimate the total amount of exploration and production, while focussing on day rates for rig hire has caused them to overstate costs.
Just as the perfection of long-known but expensive hydraulic fracturing techniques in the mid-2000s paved the way for the first shale gas (and then oil) revolution, improvements in drilling efficiency and better reservoir management will open the way for a second revolution - provided that oil and gas prices remain high enough to incentivise the investment.
Most oil and gas wells are drilled by specialist drilling firms under contract, either long-term or spot, to an exploration and production company.
The North American market is dominated by four big companies, which between them account for around half of all rigs operating across the United States and Canada. Besides Precision Drilling with around 374 rigs, Helmerich & Payne has 290, Nabors 390 and Patterson-UTI 206, according to recent company filings.
The total number of active rigs across the United States and Canada remains broadly unchanged since oil and gas prices peaked in 2008. But that masks an enormous change in the rig fleet.
In 2008, the U.S. fleet consisted of around 1,000 older mechanical rigs, another 600 with silicon-controlled rectifiers (SCRs) and direct current (DC) motors, and just 250 units employing alternating current (AC) motors.
DC motors traditionally provided more power and speed control, but advances in technology mean AC machines can now provide much more precision and flexibility.
By 2012, the number of mechanical rigs had fallen to 600 and SCR rigs were down to 500, but AC units had climbed to 600, according to a recent presentation by Helmerich, the most profitable drilling firm, which owns about 40 percent of all AC units.
Helmerich dominates the supply of AC rigs (with around 250), far more than Nabors (150) or Patterson (60), which helps explain why the company has been more profitable recently and why its share price has significantly outperformed its peers.
Helmerich also benefits from a much greater exposure to oil and liquids-rich exploration rather than dry gas plays. Its share price has fallen just 7 percent over the past 12 months, compared with a 20 percent drop for Nabors and 34 decline for Precision.
FASTER AND LONGER
Helmerich claims one of its ultra-modern rigs can drill a well in just 15 days (three to move the rig onto the site and set it up, nine to actually drill and three additional days), compared with an industry-wide average of 30 days for a conventional rig. Helmerich can charge out its rig at 60 percent above the industry average and still leave the client with significant cost savings of around $500,000 per well.
Precision, which has been the worst performer in the last year, has been substantially upgrading its legacy rig fleet. Since 2007, the company has added 110 new build rigs to its fleet and upgraded another 40, according to Chief Executive Kevin Neveu.
"Our decision to retire and dispose of the legacy tier-3 rigs is an important point in the company's transition," Neveu explained.
"While some legacy tier-3 rigs may have market niche opportunities, the drilling industry's growth and success will be driven by improved drilling efficiency, safety performance and environmental performance."
Amid all this upgrading, crude rig counts provide little clue about the number of wells being spudded and total footage drilled.
In 2008, 332 million feet of exploratory and developmental oil and gas wells were drilled in the United States, according to estimates compiled by the Energy Information Administration (EIA), up from a low of 101 million in 1999.
No estimates are yet available for more recent years. Nonetheless, the oil and gas industry will probably have drilled much more footage in 2012 than 2008, even with the same number of rigs, based on shorter drilling times and other improvements in technology.
Helmerich claims its rigs can drill 24 wells per year, double the number of a conventional set-up.
As the new technology diffuses throughout the sector, improvements in efficiency could have as a big an impact on oil and gas production as the original fracking revolution.
* Elbit Imaging Ltd. Announces third quarter results for 2016
* A non-brokered private placement of up to 16.25 million units of Company at a price of $0.08 per unit
Dec 2 U.S. energy companies extended their recovery in oil drilling into a seventh month this week as they follow through on plans to add rigs as crude rose to its highest price in over a year. Drillers added three oil rigs in the week to Dec. 2, bringing the total count up to 477, the most since January, but still below the 545 rigs seen a year ago, energy services firm Baker Hughes Inc said on Friday. Since crude prices recovered from 13-year lows to