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Originally posted by Torinoman
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Yeah with some random OPEC rumors... still didn't make up for the losses this week.
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Some of the big guys are finally starting to redefine 'normal'
Defacto Divestment: Patterson's 2016 Depreciation Expense Is 3x Its Capex
Land drilling is a highly capital intensive business. Each new land rig can cost upwards of $20mm and maintenance and upgrades are an ongoing capital cost.
A ratio of great importance in high capital intensity businesses is capital expenditures to depreciation expense. If capex is below depreciation expense, then a company is essentially divesting. In other words, new investments are not compensating for the annual decline in the fixed asset base.
- When capex is below depreciation, the under-investment implied can be thought of as defacto divestment.
- When capex equals depreciation, the company is maintaining its asset base, treading water.
- When capex is over depreciation, then the company is investing in growth.
Last week, Patterson-UTI said it would spend $190mm on capital expenditures in 2016 (for the full year). This level of investment for all of 2016 is about equal to the depreciation expense Patterson will take during the first quarter alone of $175mm.
Depreciation expense for Patterson will likely begin to decline throughout the year given the large fall off in capex. Still though, depreciation for the year will likely be at least 3x capital expenditures for this land driller.
For context, in 2014 Patterson-UTI spent over $1bn on capex, depreciating only $719mm of asset value.
This is an example of the reduction in overcapacity needed to clear the decks and re-set the industry for new commodity realities.
And an editorial with similar sentiments for the offshore sector:
No Outlet -Stockpiling Of Rigs Has Reached Critical Mass
From working over-supply to stacked over-supply the situation for drilling rig contractors with offshore assets is getting grimmer by the day. High spec rigs all dressed up but nowhere to go…middle-aged drill ships unable compete against their shiny new counter-parts…and a cadre of vintage iron piling up along shores of Southeast Asia and the North Sea hoping for just one more chance to turn the bit before a restful death. What do we make of the decision to keep so many rigs warm and ready? Have drilling contractors developed this hoarding mentality in hopes of some pie in the sky resurgence in rig demand or have their ill-fated attempts to preserve fleet valuation led them down this dead end road? These questions are sure to be asked in earnings calls over the coming weeks.
Irrespective of reasoning the numbers alone are staggering. There are 118 floating rigs currently out of work, seven additional floaters are contracted but idle due to cancelled work programs, and 51 more floating rigs are rolling off contract by the end of this year. Every quarter in 2016 multiple floating rigs will be rolling off contract. Eighteen have already been sent to shore in January alone. Floating rig demand is forecast to drop another 30% as operators make deep cuts to their e&p budgets…for the third year in a row. As rigs continue to move from working to warm marketed utilization plummets to 60% while leading edge day rates tumble towards an uncertain bottom and dangerously close to break-even. AND IT'S ONLY FEBRUARY!
There are some things that drilling contractors cannot control…operator budgets, oil price, global oil demand, and oil surplus. There are also things that are within their control and have been amply addressed the past 12 months…cost reductions in operations and onshore logistics, eliminating dividends, and reducing corporate head counts.Using financial and operational levers to maintain corporate value is necessary but the rewards are short-lived in the absence of addressing supply and demand. The issue of stockpiling rigs in a ready warm state has reached critical mass. There are nearly 40 floating rigs currently warm stacked that could be retired today based on vintage. These rigs will likely never work again. There are at least another 10 floating rigs currently warm stacked that could be placed into cold stacked mode and removed from marketed supply immediately. These rigs stand little chance of working again for at least two to three years.
The asset unemployment line is growing longer by the day. Could 2016 be the year that drilling contractors finally acknowledge they’ve reached the end of the road and there’s just no outlet for these older rigs? Let's hope so.Last edited by Strychnine; 02-12-2016, 10:09 PM.Comment
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And lastly before I go back to work and drinking...
US Land Drilling Is Now Dangerously Close To 50-Year Lows
The US land rig count is about to do something it's done only once in past 50 years - dip below 500.
As of Friday February 12, 2016, the US land rig count stood at 514. It has fallen an average of 23 rigs per week over the past 4 weeks, and will likely dip below 500 next week or the week after.
The US land rig count has only been under 500 active rigs at one other point in the past 50 years or so. During the summer of 1999, another downcycle sent activity spiraling below the 500 level. For about 8 months during 1999, the US land rig count trended below the 500 mark, averaging about 430 rigs during this dark period.
Other than that, the rig count has been over 500 in the US for a half a century. Until next week...Comment
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$1.32 in White Settlement today.class joke
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private:
char Forrest, Jenny, Momma, LtDan;
double Peas, Carrots;
string MommaAlwaysSaid(const bool AddAnyTime = True)
};Comment
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$1.29 at Kroger on Teasley in Denton. I have 50 fuel points (worth 50 cents a gallon disccount).Comment
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the true test is the price of diesel!
$1.59 in sleepy Alvin, TXComment
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This is going to test gas prices when I was a young driver!
Fuck, it was so long ago, I don't even remember what prices were, LOL. I do remember when I quit smoking, it was around $1 a pack tho.Comment
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There was a station in Plano called FISCA. they only took cash. I used to drive up there to pay .97/gal for 93 octane in 1994.
We're looking at late 90's gas prices right now. Cheaper when you account for inflation.
In 95 I paid $1.13/pack for Camel lights in Stillwater, OKComment
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Well, I got 10+ years of driving on that, LOL.Originally posted by Cooter View Post
Cig's may have been $1.2x or something, just seems like they were close to a buck, but I don't remember how close I guess. It was Feb 4th, 1997. Have not had one since! Bought our first house, said I was not smoking in it, so quit that day.Comment
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Could easily double that, if I add this savings on top.Originally posted by Cooter View Post
I used to drive to Whatburger every morning, pull up and say, It's Rob.
Pull up to the window and paid for an ice tea, and a sausage breakfast on a bun before work every morning!
After work, Baja Beach Club (Arlington) had happy hour, and free food, so we went almost every night after work! I hardly ever bought food at home or cooked.
Getting married probably saved me from a heart attack!
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for sure... it's easy to burn $10-20/day on convenient junkComment
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Saudi Arabia and Russia have taken the first step to stem the slide in oil prices. There’s just one problem: If they are successful -- and that’s a big if -- the wildcatters of Texas, Oklahoma and North Dakota are waiting to pounce.Also a bombing in Turkey today. Things could heat up with Saudi Arabia and Turkey already posturing against Assad/Syria in opposition of Iran and Russia.Crude inventories fell by 3.3 million barrels in the week to Feb. 12 to 499.1 million, compared with analysts' expectations for an increase of 3.9 million barrels. Crude stocks at the Cushing, Oklahoma, delivery hub dipped by 175,000 barrels, API said.Comment
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