Arkansas emerges as mainstay in U.S. ‘rig count’ list

For veteran U.S. oilfield hands, one of the key barometers for the oil and gas industry has been the weekly rotary rig count by Houston-based oilfield services giant, Baker Hughes Inc.

Since 1944, Baker Hughes has issued the North American rig count as a service to the industry at noon central time on the last day of the work week. For years, the Baker Hughes list was published by major newspapers and trade publications, referred to frequently by journalists, economists, security analysts and government officials, and included in many industry statistical reports.

In oilfield parlance, a rig must be on location and be drilling or "turning to the right" to be counted as active. A rig is considered active from the moment the well is "spudded" until it reaches target depth or "TD".

However, rigs that are in transit from one location to another, rigging up or being used in non-drilling activities such as workovers, completions or production testing, are not counted as active.

"When drilling rigs are active they consume products and services produced by the oil service industry," says Baker Hughes, one of the world’s largest oilfield service firms. "The active rig count acts as a leading indicator of demand for products used in drilling, completing, producing and processing hydrocarbons."

For example, the North American rig count tally peaked at 4,530 on Dec. 28, 1981, during the height of the U.S. oil boom, but bottomed out on April 23, 1999 when crude oil prices fell below $20 a barrel. Today, there are 2,088 rotary rigs operating in North America, and a total of 1,669 in the U.S.

But crude oil is no longer king. Today, of the 1,669 operating rigs across the U.S., 965 of those oilfield crews are drilling for natural gas.

That trend is especially true in Arkansas, where the unconventional Fayetteville Shale play has vaulted to No. 7 on the list of the nation’s largest producer of marketed natural gas. As of Friday, the official rig count for Arkansas is 37, down from 38 on the previous week.

For the month of October, the average daily rig count across the state has been a healthy 38, putting Arkansas among the top 10 states in the U.S. Overall, Texas leads the list with 711 active rigs, while Louisiana and Oklahoma are next with 184 and 148 rigs, respectively.

However, just five years ago, Arkansas was nowhere to be seen on the rig count list. In fact, the health of the Natural State’s oil and gas industry could be seen in the average number of operating rotary rigs annually.

For instance, between 1988 and 2005, the average number of operating rigs in Arkansas rose above single digits only four times. But the worse year came in 2002, when the average number of rigs operating throughout the year was only one.

Still, a closer look at the Baker Hughes’ numbers for Arkansas between 2001 and 2003 reveals several months in that three-year period when there were no rigs working at all. Yet, in the past five years, Arkansas’ rise on the Baker Hughes rig count list can be directly attributed to capital spending in the Fayetteville Shale.

In Dec. 2005, Southwestern Energy announced planned capital investment program for 2006 of $830.1 million, an increase of 66% over the $500 million in the previous year.

At the time, Harold Korell, President and CEO of Southwestern Energy, said the company’s capital program would be focused on "adding value through the drill bit and will be heavily weighted toward the Fayetteville Shale play in Arkansas."

“During 2006, we plan to significantly accelerate our activity in the Fayetteville Shale play by investing approximately $338.3 million which includes drilling 175 to 200 wells in the play," Korell said at the time. "Of those wells, nearly all are planned to be horizontal wells, which we believe will be the most effective way to develop the play. Additional capital for the Fayetteville Shale play in 2006 of approximately $53.5 million is related to the previously announced purchase of ten new drilling rigs."

Not surprisingly, the number of operating rigs began to escalate in Arkansas immediately after Southwestern’s announcement. Between 2005 and 2006, the number of active rigs operating annually in Arkansas jumped from nine to 24.

That number nearly doubled in 2007, jumping 87.5% to 45 active rigs. The tally peaked in 2008 at 51, and fell slightly to 44 in 2009. Declining natural gas prices have been the major reason for the slight decline in 2010, industry analysts say.

But even with the slight decline, industry analysts say Arkansas is now a permanent "rig count" fixture.