The initial asking price for a rig usually is established pretty much by the market and the law of supply and demand. Some years ago, when oil prices were high and America was actively looking for oil, everything that could make hole was drilling shot holes, and rigs were at a premium. I looked at a lot of rigs that were sold because they were “drilled out” and needed major rebuilding to get them field-ready. Most of these rigs needed a major mud pump and/or compressor rebuild, a complete rotary or tophead rebuild AND a drawworks rebuild. A feller could put some serious money into a cheap rig!
Quite a few of the larger companies knew this and went ahead and bought new rigs. This pushed new rig prices up. Not too long after that, the bottom fell out of the shot hole market, and the same guys who bought new rigs just a couple years before were seeing their iron go at bankruptcy sales at prices near the level that they recently had gotten for “drilled out” rigs. I don't see the shot-hole market ever coming back like it was in it's hey-day, but there are some other plays that are moving the market recently.
The geothermal market is slowly, quietly becoming a mature market. Lord knows it's taken long enough! When we started doing geo projects in the 1970s, jobs were few and far between, and most drillers used the same rigs they used to drill domestic house wells. This worked pretty well, except there is a much higher emphasis placed on making footage than on completion and production. If a rig wasn't turning to the right, it wasn't making money. Drillers figured out that they needed compact rigs that were “hell-for-stout” to keep a bit on bottom, making hole. Larger mud pumps and larger air compressors are the rule. I know several contractors running multiple, high-pressure mud pumps to increase production, plus portable mud systems to cut “on location” time.
Another coming play is coal-bed methane. With energy prices once again headed for the moon and natural gas demand at all-time highs, there is a lot of pressure on the industry to produce what we used to call “secondary sources.” Now that it looks like the tree huggers and the “all-development-is-bad” crowd are out of power, and running out of hare-brained reasons why nothing will work, we actually might be able to get some drilling done. Sometimes I think these liberals are so open-minded that their brains fell out!
Another interesting development lately in the rig market is the Internet. We're all used to looking in this magazine and others for used rigs. Most guys I know look up their make and model of rig to see what the latest market value is. On the Net, we can find a great variety of rigs, from all over the world, sometimes at prices too good to be true. Sites like e-Bay, DrillBay.com, government auctions and of course, the National Driller classifieds all are on the Net.
A word of caution, though, about buying a rig on the Net: I recently went on DrillBay to look at the rigs. I found a 1000 Gardner-Denver rig for $12,000! I clicked on the picture and WOW, I had to have that rig! I called a number in Duluth, Minn., and asked the man for his wire transfer number. I told him I'd take the rig and be up there tomorrow to pick it up. “That rig isn't $12,000,” he said. I told him I was looking at the picture, and the price was $12,000. “No, that rig is $89,000,” he said. So I asked him: “You mean to tell me that you showed me a $89,000 rig and low-balled me at $12,000?” He said, “Well, um, somebody else does the Web page; they must have made a mistake.”
I asked him what rig he had for $12,000. As you might expect, it was a piece of junk that probably is worth about half of that! I told him it would be a good idea to correct his ad. It's been a while now and he hasn't done it yet - probably isn't going to, either. I reckon he figures that some fool will come along and get sucked in by his bait-and-switch advertising scam and buy a rig that probably is worth about $65,000 for $89,000. Some people are as crooked as a dog's hind leg.
The moral of the story: Be prepared to do your homework when buying a rig. Go look at it, drill with it, if possible, talk to the actual driller who drilled with it and get a professional appraisal. It doesn't cost too much in the grand scheme of things and can save you a lot of money down the road.