Big rigs pave way for second shale oil boom

On a drilling rig towering above quiet cattle farms in Southeast Texas, Eric Williams perched inside the cabin of the 16-story machine, twisting a pair of joysticks to guide a gigantic wrench roaring into action, drowning out every sound as it reached for a 1,500-pound pipe emerging from the earth - pipe that soon will feed oil into a second shale boom.

Years ago, a worker doing Williams' job would have stood outside on the rig floor, working a brake handle and knobs as men, drenched in sweat and syrupy fluid, worked the pipe by hand - a dangerous job. Now he sits behind six computer screens and a complex array of controls, piloting a 10-ton wrench on a so-called super-spec rig, one of a new breed of advanced drilling machines that are bigger and stronger than the ones that sparked the first U.S. shale oil bonanza a few years ago.

They're part of the fleet of new technologies paving the way for a historic surge of oil that could break the nation's 1970 production record next year and further erode the decades-long grip the Saudi-led Organization of the Petroleum Exporting Countries has had on global oil markets. The cartel's gathering in Vienna last week to extend oil production cuts put into place earlier this year showed how quickly the oil world's center of gravity has shifted.

Just a few years ago, even talking about production cuts would have sent crude prices skyrocketing. This time, when OPEC and other major producers agreed to reduce output by 1.8 million barrels a day into next year, prices fell nearly 5 percent as traders remained unconvinced the move would do much to shrink supplies in the face of rising U.S. production.

"OPEC's market influence is highly questionable," said Antoine Halff, director of global oil markets at Columbia University's Center on Global Energy Policy. "We spent seven years revising shale forecasts upward because it went up much faster than anyone expected."

The market's cold response underscored just how much clout the cartel has ceded to U.S. oil companies, which found ways to wring a lot more oil from the earth at a profit - even at low prices.

Survival of the fittest

Those ways include the super-spec rig operated by Williams and owned by the Houston oil field services company Patterson-UTI Energy.

This particular $25 million machine, churning about 100 miles northwest of Houston, in the Bryan-College Station metropolitan area, has drilling systems more powerful than two semi-trucks screaming down the highway, and it can force fluid down a well with more than 100 times the pressure of a fire hose.

All told, it's capable of supporting a fully-loaded Boeing 747, and it walks the dozen feet between well sites on four 10-ton feet. It can drill an oil well in less than 10 days, shaving more than a week from the average drilling time in 2010, and allowing oil companies to drill a greater number of wells each year.

The rig isn't a product of the technological explosion that spurred the five-year oil boom that ended in 2014, but of the natural selection of the two-year oil bust that followed. Its appearance here in a northern spot of the Eagle Ford Shale marks yet another seismic shift in the world of energy.

More than 550 oil companies had at least one rig drilling in the United States at the height of the oil boom, but the collapse of crude prices whittled that number down to 150 in 2016 in a cascade of job cuts and bankruptcies. Now, the number of companies plowing U.S. fields with at least one rig has grown to nearly 300, a sign the industry didn't capsize despite the brutal free-market forces that cost Texas 1 in 3 oil jobs.

Patterson-UTI and its competitors have dispatched hundreds of these upgraded super-spec rigs to oil fields in Texas, Oklahoma and North Dakota in recent months, at the behest of U.S. oil companies whose watchwords have become cost and efficiency. Inside the rig manager's office, a $1 bill hangs on a wall with the words "SAVE 1 A DAY!" scrawled across it in thick, emphatic ink.

Andy Hendricks, chief executive of Patterson, a tall man with graying hair, stood in a white hard hat and dark coveralls at the foot of the Apex XK drilling rig on a sunny day earlier this month. As the rig hummed and whirred like an airplane engine above the Eagle Ford Shale, Hendricks recalled how the dense shale rocks underfoot were once considered an obstacle in the oil patch, back when he was a petroleum engineering student at Texas A&M University in the late 1980s.

Now, after technological breakthroughs pioneered by oil field legend George Mitchell, those rocks might as well be pure gold.

Half the time

About a decade ago, after the first wells in the Barnett Shale in North Texas produced commercial levels of natural gas, some of Patterson's oil-company customers wanted to know if the same techniques would work in the Marcellus Shale in Pennsylvania. Patterson had to bring about 20 pumps from its operations around the Northeast - not to mention other equipment - and line them up to frack the first Marcellus well.

"When the first well came in, they were all happy," Hendricks said. The Marcellus became the dominant U.S. shale gas play.

Today, Patterson has about 100 super-spec rigs, machines with masts and substructures that have a load capacity of 750,000 pounds, a proxy for the amount of drill pipe a rig can manage. Right now, they're all scattered across the nation, working jobs in various oil patches.

After deep job cuts in the worst of the oil bust, Patterson has doubled its active rig count and has recruited back more than 1,000 people to work on its rigs and hydraulic fracturing trucks over the past year. And even though these rigs have become more and more automated, driven by increasingly advanced computer technology, there's so much work in the U.S. oil patch that Patterson has had to hire larger crews to work on each rig.

"There's more to do on the rig," Hendricks said.

For example, it now takes only 48 hours for the rig to fold like a lawn chair and break down into 46 truckloads to move to the next drilling location. That's down from four days, but doubling the speed requires more roughnecks to handle the workload.

Patterson's new hires include about 400 in its hydraulic fracturing business, after it activated four fleets of pumps, blenders, trucks and other equipment. The company, Hendricks said, has earmarked $145 million for technology upgrades this year that would bring dozens of its advanced rigs into the super-spec category, a term that originated among oil investors last year to refer to the fastest rigs in the U.S. fleet.

With the acquisition of Oklahoma drilling contractor Seventy Seven Energy this year, Patterson has become the second most-active U.S. drilling contractor behind Oklahoma's Helmerich & Payne. Twenty-two years ago, the Houston company, now with around 6,000 employees, began as a $16 million firm with 20 rigs and a small pressure pumping business, which provides hydraulic fracturing services to stimulate oil wells. It's now worth $4.7 billion and occupies a high perch in the two business - drilling and pressure pumping - at the epicenter of another potential shale boom.

Home, sweet home

Mark Siegel, Patterson's chairman, said Saudi Arabia meant to crush the U.S. shale industry when it decided against oil production cuts in November 2014, sending prices into free-fall under the weight of a global oversupply. U.S. oil production dropped by about 1 million barrels a day, but ultimately, Siegel said, OPEC's efforts failed to wipe out the companies pumping crude from shale oil fields, which adapted to lower oil prices.

"We've learned to become economic at $50 oil," Siegel said. "It looks as if we could produce more oil than the country has ever produced in its history."

The nation's active rig count has climbed from its recent low of 404 about a year ago to 901, according to Baker Hughes. With prices hovering around $50 a barrel and drillers mastering the feat of pumping more oil at lower costs, companies have sent new workers from the outskirts of Odessa and Midland in West Texas to even more remote fields in North Dakota.

Williams, the Patterson-UTI rig operator, recalled the first rig he saw, looming over his hometown of Midway 16 years ago. "I kept asking them what it did," recalled the former construction worker. "I figured I'd give it a shot."

Williams has been stationed in Laredo for the past few years, far from his home near College Station. But with drilling rigs now moving to the many different corners of the oil patch, he jumped at the chance to leave Laredo to drill in southeast Texas - at least, until the next oil company calls Patterson-UTI.

"I'm glad to be back home," he said, "for a little while."