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The current malaise in the oil industry has placed a renewed emphasis on measures to cut costs, as producers struggle with the realities of sub $50-a-barrel oil. One of the more interesting innovations in the oil patch is the "walking" oil rig that can easily move from one well to the next, thus saving the operator the expensive and time-consuming process of disassembling and reassembling rig components.
In the United States, the advent of horizontal directional drilling technology over the last few years has resulted in opportunities for movers of conventional oil rigs, particularly in shale regions like the Bakken and Eagle Ford, where deeper and longer wells require larger rigs and bigger equipment to move them. However, as the North American rig count continues to drop, alongside lower oil prices, these conventional rig movers are finding themselves in competition with companies that make rigs that do not need to be broken down when the well runs dry.
Schramm, the same company that built the drill rig that helped rescue 33 Chilean copper miners trapped underground for two months, recently unveiled a 500,000-pound drill rig that can travel hundreds of yards under its own power. The oil and gas rig can rotate 360 degrees, be operated with a remote control and load pipe automatically.
"The T500XD rig's futuristic control room has touchscreens and joysticks, rather than the valves and dials on conventional rigs, appealing to a generation of oilfield workers raised on video games. More than 200 sensors monitor pneumatics, oil flow and myriad other processes, 'talking' via satellite or Wi-Fi to Schramm's Pennsylvania headquarters and signaling any problems," the rig is described in an April Reuters post.
The mobile rigs are smaller than conventional ones -- requiring only half the amount of loads to ship -- and do not require roughnecks to guide and move drill strings into a well. Instead, the work is done by an operator in an enclosed cab, meaning the new drill rigs require far fewer workers. They are also safer. Pipe handling is one of the most common activities that cause injuries in the oil industry.
The advent of pad drilling, where a number of horizontally drilled wells are worked off a single pad, or collection of pads, has also provided a niche for the walking drill rig. Moving a rig between two conventional well sites requires "rigging up" and "rigging down," even though the new location might be just a few yards away. With pad drilling, the fully intact rig can be lifted and moved to the next well using hydraulically powered "legs", or skidding systems. At 30 feet an hour, the rig doesn't move quickly, but it's a lot faster than disassembling and reassembling.
The trend of using mobile rigs isn't restricted to U.S. shale fields. In 2014 Schramm sold a T500XD to Energy Drilling Australia, which began drilling for Senex Energy Ltd. in Australia's Cooper Basin and for Statoil ASA in the Northern Territory. However, the new rig isn't cheap, and that is causing buyers to hesitate, especially as low oil prices squeeze margins. Schramm is marketing the T500XD for around $8 million, three times the price of its earlier model, the TXD.
The company justifies the higher price based on the fact that the T500XD has more electronics than the TXD, and is heavier, therefore more powerful.
But just how economical are these new rig robots? With the ability to do quicker completions and drill more wells, Rigzone notes operators can do more work with less equipment, thus saving time and money. It quotes a public statement from Carrizo Oil & Gas (NASDAQ:CRZO), a Schramm customer, as having saved $15 million over eight months "by using several TXDs for top hole work at a lower day rate and faster mobilization versus using traditional technology big rigs."
Precision Drilling CEO Kevin Deveau has also weighed in on walking drilling rigs, saying the rigs have better drilling parts and can work across several wells, increasing profits and upping drilling speed in more locations. The company recently teamed up with Schlumberger (NYSE:SLB) to combine Precision's walking rigs with the oilfields service giant's drill bits, geological data and other tools in order to increase efficiencies in shale reservoirs.
According to Bloomberg, more efficient drilling rigs helped boost the per-rig output in the four largest U.S. shale fields by at least 40 percent since the start of the oil price plunge in mid-2014. Despite low prices, producers are incentivized to keep drilling in order to maintain cash flow and limit debt loads.
"Even though the rig count is down by half, you can do more with the half that's still working," an analyst at Edward Jones in St. Louis told the news outlet in early September.
While walking drilling rigs are helping to improve challenging oil patch economics, it also appears the decision whether to use newer or more traditional rigs is not a zero sum game.
Sean Roach, vice president of drilling systems and services at Schramm, says while new technologies may "cannibalize" some rig demand, there will still be plenty of room for traditional rigs, with a variety of rigs needed for different wells, he told Rigzone.
However, the current low price environment is also limiting orders, as producers make do with fewer rigs for around the same amount of production as a year ago. Innovations and efficiencies are good selling points, but it's still a tough time to be a drill rig manufacturer.
By Andrew Topf of Oilprice.com. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.