CRITICAL ISSUES IN DRILLING & COMPLETIONS
Drillers seek ways to maintain
capital discipline while still
investing to keep rigs competitive
Despite market optimism, drilling contractors
remain wary of focusing on growth when
it doesn’t translate into shareholder return
Dan Hoffarth, CEO, Citadel Drilling
BY STEPHEN WHITFIELD, SENIOR EDITOR
What would you say are some of the
biggest challenges the industry faces
in the unconventional space, and how
do you think the industry should
address those challenges?
I think the biggest critical issues for us
are still going to be focused on utilization
and people, but I believe that 2024 will be a
better year than 2023 – or at least, the back
half of 2023.
I think we need to go back and look at
what happened in 2022 and 2023, so we
can figure out where things need to go in
order to have a more desirable outcome
in 2024. What we’ve seen is decreased
gas prices really hitting in places like the
Haynesville, the SCOOP/STACK and the
Eagle Ford. That drop in rig count has a
direct impact on everyone’s books. It’s a
major key indicator to understand that we
need both consistent gas and oil prices for
drilling contractors to have a decent busi-
ness model.
We have a bunch of super-spec rigs sit-
ting on the sidelines because of the drop in
gas prices. That creates market pressure,
which creates pricing pressure and a loss
of jobs. You’ve got 15 to 18 people per rig,
and then you add on the associated servic-
es, so we’re talking around 150 jobs per rig.
Where do those people go during a period
of inactivity, and what does the industry
do when gas prices recover?
I believe they will recover in 2024, and
we’re going to have to go back to the mar-
ket and try to find some of these people.
A lot of them will say they’re not coming
back to the oilfield because they found
another pretty decent job without the ups
and downs. As an industry, how do we
continue to fight the cyclical nature of our
business where we are putting people to
work and then letting them go?
I guess the cycles are just part of the
industry, aren’t they?
24 I mean, that is the industry. We have
to be able to manage our assets based
on a cyclical outcome. We’ve never had
anything other than cycles in the drilling
space. More than just people, that also cre-
ates challenges around equipment. How
are we going to meet operators’ equipment
needs when we don’t have a confident
view on utilization?
More importantly, how can drilling con-
tractors be expected to invest the capital
required to improve and maintain top level
equipment if there is not a clear path to
both payout and profitability? That’s going
to continue to be another major challenge
for the industry as we move forward.
You mentioned the super-spec rigs. As
gas prices go back up, how important
will it be for drillers to have those rigs
ready to work quickly?
The best rigs in the market get picked
first every time. Super-spec rigs have prov-
en time over time to create the greatest
degree of production per day of any unit of
machine. To me, that’s paramount.
For any operator, if you have that choice,
you’re going to want the higher pump
capacities. You’re going to want the high-
er torque capacities out of the top drive.
You’re going to want the greater racking
capacity. You’re going to want to have a
moving system, a handling system for the
BOPs and the most advanced fluid han-
dling systems. And then you’re going to
want all the digital applications.
When we take a look at production per
rig year over year, and why we need fewer
rigs to produce more than we did 10 years
ago, it’s the quality of the equipment. It’s
also important to look at the quality of the
people, the quality of the digital assets,
the quality of the engineering – but none
of that can shine if you don’t have the
machine behind you that has the capacity.
You cannot race a Formula One race in a
stock car. It doesn’t matter who your driver
is, or who your pit crew is, or what the
track is. You will finish last in every race.
For the past few years, we’ve seen a
focus on capital discipline from E&Ps,
and that’s had a trickle-down effect
throughout the industry. Even now, the
most recent quarterly reports from
E&Ps have touted returning cash to
shareholders. As we see a gas price
recovery, do you think capital disci-
pline will still be the MO for the industry
moving forward? If so, how does that
affect your business?
We need to maintain a balance with
regards to every part of our business. On
one pillar, we need to have balance with
our equipment – keeping our equipment
at a super-spec level and in top shape.
On another pillar, we need high-quality
JAN UARY/FEB RUARY 2024 • D R I LLI N G CO N T R ACTO R