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Higher Prices Bring Short Supply Of Oilfield Equipment

July 16, 1987

LAFAYETTE, La. (AP) _ Oilfield equipment, a glut on the market not long ago, is now in short supply on the Gulf Coast, auctioneer Milo Sullivan said Thursday.

″The good, usable equipment was bought or used by companies who did have rigs working during the downturn,″ said Sullivan, who was auctioning equipment Thursday from from 57 companies.

Until recently, there was a huge surplus of drilling equipment because of overproduction during the boom of the late 1970s and early 1980s. The downturn stuck manufacturers and supply companies with huge stockpiles.

At the height of the slump most surplus equipment was bought by drilling contractors who got equipment at bargain basement prices to keep rigs working.

Some contractors are still buying. But most buyers at auctions now are speculators, such as large supply firms working to restock yards in time for the predicted increase in activity.

Sullivan said the market began to change rapidly about six months ago. In the last 30 days, he said, prices have almost doubled for such tubular goods as drill pipe, casing, handling tools, small equipment and diesel power units.

″There’s actually a shortage of good, usable tubular goods - not junk - such as small, high pressure blowout preventers and valves,″ Sullivan said.

He said other long-lasting drilling rig equipment, such as the substructure, masts, drawworks and pumps, can be reworked and reused for 20 to 30 years.

″So the things that are being picked up on the market are those that wear out and we’re using up these surpluses,″ Sullivan said.

″Drill pipe is a good gauge of activity since that’s what wears out quickest and what you’re constantly replacing,″ he said. ″That’s what speculators are running out and buying, thinking they’re going to double their money in three months.″

He said the most commonly used grade of pipe has risen from $1 to $2 a foot to $3 or $4 a foot.

But steadily rising oil prices have created more speculation than actual activity, Sullivan said.

He said no one is rushing out to buy brand-new equipment. A rig built in 1980 can be bought for $600,000 to $1 million, compared to $3 million to $4 million for a new rig.

In the last five years, Sullivan himself has liquidated over 100 rigs, all but one land units.

″No one has kept a rig completely intact in five years,″ Sullivan said. ″They’ve all been cannibalized and various components have been sold. It would be extremely expensive to buy the components to put it back together.″

About 90 percent of the equipment bought at auctions along the Gulf Coast has been moved to areas such as California, New England, Ohio and West Virginia, where there has been a noticeable increase in activity.

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