Apparently it is Boomer Sooner indeed as rising demand for higher spec 1,500 horsepower rigs in Oklahoma’s SCOOP play—the southern extension of the Woodford Shale—has operators bumping into a tight market for pad capable drilling units.

Oklahoma operators are competing against strong demand in the Permian Basin and Eagle Ford Shale for 1,500 horsepower rigs suitable for pad drilling with self-mobilization packages, high setback capacity for racking pipe and larger top drives. The short supply of Tier I pad capable 1,500 horsepower rigs in southern Oklahoma is generating interest in newbuild rig construction.

Those are results from a mid-April Hart Energy survey of operators and land contractors active in the Midcontinent.

Oklahoma’s rig count peaked at 103 units in February 2012 before natural gas prices collapsed. Rig count declined to 69 units in September 2013, according to Baker Hughes Inc. (NYSE: BHI), but has bolted strongly out of the starting gate in 2014 and, at 99 units in mid-April, was horseshoe close to a two-year high.

In some cases contractors have been able to retrofit rigs to satisfy operator requirements, but nearly half of survey participants indicated there were not enough 1,500 horsepower units with pad drilling capabilities to meet demand in the southern Woodford Shale. Consequently newbuild rigs have become an option to meet requirements for upgraded capability in setback capacity, self-mobilization packages and bigger top drives.

About 95 rigs are currently under construction for the domestic drilling market.

Operators are seeking higher spec units to drill extended horizontal laterals as the southern Woodford Shale undergoes optimization. The play is gradually working across the southern Anadarko Basin toward existing wet Woodford activity in the Ardmore Basin.

Rising rig activity in the southern Woodford Shale is offsetting rapidly declining activity in the liquids rich Cana Woodford Shale further north. For example, operators Devon Energy Corp. (NYSE: DVN) and Cimarex Energy Inc. (NYSE: XEC) have gone from a combined 28 rigs active in the first quarter 2012 to just three currently as poor natural gas prices reduce Cana Woodford well economics. Conversely, Marathon Oil Corp. (NYSE: MRO) and Continental Energy Inc. (NYSE: CLR) are among operators increasing activity in the southern Woodford Shale play where overall rig count has moved from the low 20s in November 2013 to 40 currently. Operators such as Continental are experimenting with extended laterals up to two miles in length, emphasizing the need for higher spec rigs.

Meanwhile, contractors in the Hart Energy survey report they are retrofitting legacy-drilling units into higher capability rigs, though most retrofits are apparently destined for western Oklahoma and the Texas Panhandle. Elsewhere, legacy conventional mechanical rigs are meeting needs for Mississippian Lime drilling in north central Oklahoma and are in abundant supply.

Outside specific requests for newbuilds, regional rig capacity is sufficient to meet operator needs, survey respondents reported, and neither operators nor contractors expect rig rates to move above current levels. Survey respondents quoted rig rates for 1,500 horsepower Tier I units at $25,000 per day, about $3,000 more than a similarly equipped Tier II standard electric rig.

Rates for newbuild 1,500 horsepower units were quoted at $27,000 per day with a three-to five-year contract.

Contact the author, Richard Mason, at rmason@hartenergy.com.