Drilling rig prices are spiking in the U.S. shale patch

(Bloomberg) — After driving up prices for everything from steel pipes to frac sand to labor, inflation has finally ensnared the centerpiece of oilfield equipment: the drilling rig. 

Rig prices are spiking in the U.S. compared to the rest of the world, promising profits at multiyear high for oilfield contractors. 

Three of the world’s biggest operators told investors Thursday that they’ve been able to rapidly raise prices in the U.S. compared to overseas, where contracts are generally lengthier and therefore take longer to reprice. Helmerich & Payne, the biggest supplier of rigs in the shale patch, said the higher pricing means it now has the chance to reap profits unseen since the heady days of 2014, when their margins on rigs was 50%.

“I don’t recall another period where leading-edge day rates for drilling rigs moved up this quickly,” Andy Hendricks, chief executive officer at Patterson, said on a call with analysts and investors. “The supply of high-quality equipment is now very limited.”

Oilfield contractors are generally the first to feel the pain when a bust hits and the last to benefit from a boom. But lately they’re targeting the kind of record free cash flow their customers have been enjoying thanks to $100 oil and greater austerity. Now, contractor bosses like Helmerich & Payne Chief Executive John Lindsay are citing the shale sector’s spending discipline as an example of how the providers of gear can be more profitable by not building more rigs right away.

“Part of the reason why we’re doing what we’re doing is a lesson from the school of hard knocks,” Lindsay said. “We have a tendency as an industry to oversupply the market.”

Helmerich & Payne Inc. posted the biggest gain in more than a year after reporting first-quarter results, while smaller rival Patterson-UTI Energy Inc. climbed the most in two months. 

“We’ve heard mounting anecdotes of significant land rig pricing momentum in recent weeks/months, but we definitely didn’t think this improvement would flow through to HP’s (and its peers) financials as quickly as it appears to be doing so,” Tudor Pickering Holt & Co. wrote Thursday in a note to investors. “Shame on us.”

Nabors Industries Ltd., which has a bigger international footprint than rivals as the world’s biggest supplier of rigs overall, estimates that international contracts average a year before higher prices can kick in. Still, prices are rising everywhere.

“The pricing environment is robust,” Chief Executive Officer Tony Petrello said Thursday on a first-quarter earnings call. “It applies to all markets and it’s moved faster than any time I’ve ever seen in my 30 years at Nabors.”