New Drilling stock 2010
Demand for drilling equipment in the Eagleford is running high right now. ConocoPhillips, Petrohawk, and Enduring Resources all had rigs active with a few miles of where we stood.
Rig rates are soaring, equipment is hard to find, and almost nobody outside of the industry knows it... That's why land drillers look like fantastic speculations right now. I think we could make two or three times our money over the next 18 months. Let me show you why...
In the Eagleford, the number of rigs operating doubled this year. The rig count is up 68% in the Marcellus Shale in Pennsylvania. And it's up 65% in the Piceance Basin in Colorado. Today, there are 74% more rigs operating in the U.S. than there were a year ago.
Rig rates are climbing as operators lock in long-term contracts. Pioneer Natural Resources locked up several rigs on two-year contracts at $25,000 per day. That's up from $12,000 per day in 2009 and $6,000 more than operators paid a few weeks ago.
So revenues at the land drillers are climbing fast. But the stock market hasn't caught on. A lot of these drillers are selling at or even under book value.
For these kinds of companies, book value is essentially the price you could get if you sold the drill rigs. It's like the Blue Book value of your car. When my car is running fine, I'm not going to sell it for the Blue Book price.
The same thing goes for drill rigs. If you can get $25,000 per day renting your rig, you'd never sell it for peanuts... But that's exactly what the market is doing.
