Wood Mackenzie expects a continued decline in rig utilization through Q1 and Q2 of 2015, with a levelling off by August at approximately 1,000 units.  January alone saw a decline in count by nearly 200 rigs to 1,616, down from a peak of 1,859 in November 2014.  The pace of land rigs being idled continues to accelerate, with the first two weeks in February seeing a further 200 rigs coming off contract.

"The oil price collapse is hitting onshore activity and rig operators, drilling rigs are currently being stacked at an alarming rate," says Scott Mitchell, Research Director at Wood Mackenzie.

Underlying this rig count forecast, is Wood Mackenzie's outlook for oil prices to recover during the year from the lows seen in early 2015 with an annual average of $53.25 per barrel for WTI. However, if prices are sustained in the $40 – $50 per barrel range for WTI, then the impact on rig counts will be even more severe, dropping to less than 900 by the summer.  This would represent a 50% cut in the number of operational US land rigs from the November 2014 peak.

The analysis is based on Wood Mackenzie's forecast for oil prices to recover to an annual average of $64.00 per barrel for 2016." The resulting impact on the rig market is a slow but steady recovery, averaging an additional 15 rigs per month through the end of 2016," explains Mitchell.

One of the main consequences of the declining demand for rigs is a lowering of rig day rates.  In 2014 a high spec horizontal rig could demand a contract rate of $27,000 per day.  Wood Mackenzie expects this to drop by as much as 30% in 2015 to an average day rate of $19,000 per day.  

" The rig contractors will clearly suffer in such an environment and those with the newest fleets, loaded towards horizontal walkable rigs, will fare better than their competitors," adds Mitchell.

Meanwhile the picture for the US E&P's in this environment is mixed as budget cuts will lead to fewer wells being drilled and completed.  However, service and equipment costs are reducing, allowing activity to continue in areas which would otherwise be rendered sub-economic.
Source: Wood Mackenzie