By J. MARSHALL ADKINS, Raymond James (09/20/2010)"A decade ago, oil drilling was the stepchild of the U.S. drilling business, representing less than 20% of all activity. In early 2009, everything began to change. Falling gas prices and strong ($70/bbl+) oil prices spurred E&P companies to oil-driven activity. The successful evolution of horizontal drilling and multi-stage fracking in the gassy shale plays also began to unlock the potential of a few select oil shale plays. As a result, oil-related drilling has recently doubled its market share to over 40% of the total rig count, as shown in the graph on the right. The oil rally isn’t finished, either. Record well results continue to come from the Bakken shale, and activity is heating up in a number of 'stealth oil plays,' as well. By the end of 2011, we believe the percentage of oil rigs could equal the number of gas rigs (50% of the total market).
So, what is driving this growth? Confidence in high oil prices combined with excellent results in these oil-related horizontal drilling plays has caused oil activity to outpace gas activity, and these same forces should continue to drive oil's outperformance going forward. Between increases in the Bakken, Niobrara, Bone Spring and Permian basins, we believe the market could add over 200 oil rigs by the end of 2011, of which the lion's share (~150 rigs) would be horizontal rigs."
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