American Oil and Gas Reporter - September 2017 - 60

SpecialReport: Tubulars Technology
long-lateral horizontals to slightly more than 100 tons for traditional
vertical wells. In these regions, as in others, OCTG consumption
per well has increased an average of 25-35 percent since 2014.
So exactly how much more pipe is each rig consuming? We
expect the 2017 rig count to average 875 rigs as compared with
1,862 in 2014, and expect consumption of OCTG in 2017 to be
5.2 million tons compared with 7.2 million tons in 2014. In
other words, because of faster drilling speeds and more pipe per
well, a rig today consumes almost 55 percent more pipe than a
rig did only three years ago. And a rig today will yield nearly
double the oil and gas production compared with a 2014 rig.
Now that the relative relationship between rig count and
OCTG consumption has been established, it is appropriate to
consider the forecast for OCTG for the fourth quarter of 2017
and into 2018. As always, drilling activity ultimately will be
based on oil and gas prices. There are two common commodity
price themes: day-to-day and longer term. Weekly U.S. inventory
movements, rig counts, OPEC meetings, political events,
financial reports and any number of other factors can send
short-term prices up or down at a moment's notice.
However, many believe that a lack of global investment during
the past three years will send prices higher in 2019 and beyond.
We tend to be in that camp. In fact, we believe the likelihood of
higher prices in the 2019 timeframe is greater as a result of
today's somewhat bearish pricing trend because it stymies capital
investment pretty much everywhere except in U.S. shale plays.

RICK W.
PRECKEL

Rick W. Preckel is a principal at Preston Publishing Company, a steel pipe and tubulars market research and consulting
firm that publishes the monthly "Preston Pipe & Tube Report,"
analyzing U.S. and Canadian supply. With 30 years of experience in the tubulars industry, Preckel's background includes
all key functions of running a business, including accounting,
marketing, supply chain management, information technology,
strategy and expansion. His former roles included chief executive officer, vice president of investor relations and business
development, vice president of shared services, marketing manager, and controller. Preckel holds a B.S. in business with an
emphasis in accounting from the University of Missouri.
60 THE AMERICAN OIL & GAS REPORTER

That is about to change, however, at least to some degree.
Based on information from our industry contacts, a sizable
percentage of rig contracts are running out this quarter, and
prices for rigs, frac fleets and other services are rising. Oil and
gas prices are better and efficiencies largely have kept the effect
of cost inflation at bay, but at some point, it will start to take a
toll. Some rigs probably begin to peel off in late summer, and
that trend should accelerate in the fourth quarter and through the
first part of 2018. Even so, the overall effect will not be
catastrophic. Although the concept of a "soft landing" is somewhat
foreign to the oil and gas industry, that is what we expect-
something like the market in 2012-13, when drilling and completion
activity switched away from natural gas to NGLs and crude oil.
One caveat to the concept of a soft landing is that something
always seems to exacerbate the cycles. For example, in 2014
overproduction was weakening oil prices, but producers did not
really react until OPEC began its campaign to purposefully
overproduce and drive the price down. That magnified the
effect of existing excess supply and changed the mindset of the
entire global market. There are many more examples, and unfortunately, these things are rarely predictable.
That said, however, we expect a modest decline of, say, 1015 percent in drilling activity during the next few months,
followed by a growth cycle starting in the second half of 2018
into early 2019 based on higher commodity prices, which we
expect to last for a few years.
r

PAUL E.
VIVIAN

Paul E. Vivian is a principal at Preston Publishing Company in St. Louis. He has 35 years of experience in the pipe
and tubing industry, working in both distribution and manufacturing. While in the distribution business, Vivian was involved in purchasing, inventory management, supply
procurement, sales and site selection. While in manufacturing,
he focused on business plan development, forecasting, international trade and sales. Vivian holds a Ph.D. in economics
with an emphasis on statistics, and is a graduate of the University of Wisconsin's graduate school of banking.

American Oil and Gas Reporter - September 2017

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