Improving People’s Lives: Hope Is Not a Strategy … But Without Hope, There Is No Strategy
- Nathan Meehan (2016 SPE President)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- May 2016
- Document Type
- Journal Paper
- 10 - 11
- 2016. Copyright is retained by the author. This document is distributed by SPE with the permission of the author. Contact the author for permission to use material from this document.
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A great benefit of being the SPE president is the chance to interact with students and young professionals around the world. Many are anxious about the future, but not panicked. I have been asked if this is the worst time ever in the oil business, a question that made me smile.
For some reason, it is natural to try and “scale” a current calamity with past ones. For example, financial recessions are compared with the Great Depression of the 1930s during which the worldwide gross domestic product (GDP) dropped 15% in 3 years. In comparison, the recession of 2008– 2009 saw a 1% drop in worldwide GDP but certainly felt huge. WTI crude oil prices dropped from USD 145.31/bbl on 3 July 2008 to USD 30.28/bbl in less than 5 months. The US rig count followed suit, dropping from 1,987 in August 2008 to 895 by mid-2009. It certainly was not good, but it was relatively short-lived.
Fig. 1 compares US rotary rig activity during the four most recent significant downturns. Leo Tolstoy’s quote about families may be paraphrased to apply to downturns: “Each oil price downturn is unhappy in its own way,” and each downturn and recovery had different causes. In Fig. 1, I have started with the peak US rig activity immediately prior to the beginning of the downturn and normalized subsequent weekly activity to this peak. Each prior downturn recovered to about 80% of peak activity within approximately 2 years after dropping from 45% to 55% of peak activity.
We are currently at less than 25% of the prior peak activity level and at an all-time low for the Baker Hughes reported US rig count dating to 1944. Compare this with the 1980s. In late 1981, rig activity peaked at 4,530 rigs and in the subsequent “ice age,” the rig count dropped to 663, less than 15% of the peak. While this was a steeper drop from the peak level, current rig activity is now approximately 70% of that ice age bottom, and future drops are certainly possible. Current rig activity is lower than what the US has seen in a very long time.
Is the Current US Rig Count the Lowest Ever?
I have been looking at historical rig activity measures. The Baker Hughes rig count data from 1944 include only rotary rigs. Before the 1950s, cable tool rigs accounted for a significant portion of drilling activity. Cable tool drilling dates to 1806 with horse-powered rigs. These were replaced in the 1830s by steam engines to provide rig power, and in 1860 when J.C. Rathbone used a steam-powered cable tool rig to drill a 100-B/D producer in West Virginia, cable tool activity took off. During the US Civil War, many hundreds of cable tool rigs were drilling, primarily in West Virginia, California, and Pennsylvania. If we include cable tool rigs, total US rig activity has exceeded 500 rigs since Abraham Lincoln was the US president, making the rig activity of 464 as of 24 March this year a truly historic low.
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