Oilpatch energized - Cash flow and drilling levels expected to hit record heights in 2000
Calgary Sun, Tuesday, October 26
By Glen Whelan
Strong commodity prices will lift oilpatch producers' cash flow
to historic levels next year and push drilling activity back into
record territory, a top investment research firm has said.
Despite a slow start to the year, cash flow from operations will
reach a record $16.9 billion by the end of 1999 and soar to $19
billion in 2000, FirstEnergy Capital Corp. said in a recent report
on the Canadian energy industry. With all that money coming in,
capital expenditures will hit their second highest level ever and
push drilling activity to near-record or even record numbers, said
the Calgary-based brokerage.
About 16,260 wells will be drilled in 2000 according to
"conservative calculations" that call for West Texas Intermediate
light sweet crude to average $19.50 US, said Martin Molyneaux,
managing director of institutional research at FirstEnergy.
If oil averages $21 on the New York Mercantile Exchange and
natural gas averages $3.15 per thousand cubic feet, that number
will reach a record 17,900 wells.
"It's going to be a very busy year for the service industry,"
Molyneaux said.
"It comes down to strong prices for both oil and natural gas.
We've never seen both at such relatively lofty levels
concurrently."
Capital expenditures will hit about $14 billion in 1999 and jump
to $23 billion by 2000, a 63% increase over 1999 and the
second highest level of oilpatch spending in history, the report
said.
"We had an extremely slow start to the year, but on average both
oil and gas prices have been quite strong," said oilfield services
analyst John McAleer, the report's author.
"Producers' spending capacity will increase very significantly and
that will mean a windfall for the service industry."
On the downside, the boom in oil and gas drilling activity is
expected to lead to a major shortage of skilled workers.
"Whether you're talking about high-pressure welders or other
highly-skilled trades, it's going to be difficult to find qualified
workers," Molyneaux said.
Oil prices have more than doubled since the beginning of the
year, mostly thanks to an agreement by OPEC to curtail crude
production in order to tighten world markets.
So far in 1999, crude oil has averaged 18.50 US on New York
markets, while Canadian producers have shown an average gas
price of $2.55.
In 1998, cash flow -- an important determinant of an energy
company's ability to fund future development -- sank to $10.6
billion as world oil prices languished at 21-year lows.
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