Year looks good, if politicians stay clear - WorldOil, January Editorial
The fact that you are reading this shortly after the beginning of the New
Year, would seem to indicate that we all were able to avoid major
catastrophes from Y2K bug bites. And building upon that success, it is
gratifying to be able to report even more good news as the New Year
begins.
In addition to the fact that oil prices are more than double what they were a
year ago, we are now starting to see some reaction by the producing
companies. (Yes, it is about time.) The number of rigs active in the U.S.
has risen 62% from its low point last spring, and another leading indicator
is signaling even more activity. Salomon Smith Barney just released a
study showing a dramatic upsurge in drilling permits all across the U.S.
(see worldoil.com.
If operators actually drill the wells they have permitted, then
drilling could double in some regions, if (and that?s another very big if) the rigs and people are available.
Yet another good sign comes in a report from Arthur Andersen that shows oil companies are raising their
drilling budgets. In Andersen?s survey of 89 energy companies, around 64% of the respondents say they will
increase spending for U.S. oil and gas exploration in 2000. Development work will expand as well, with 67%
planning increases. Outside U.S. activity isn?t quite as bullish, since only 29% see exploration expenditures
rising and 30% anticipate higher development work.
It?s no surprise that most of the optimism comes from the independents (77% plan more spending) rather
than the major companies (only 29% will see an increase). That?s probably because of the independents?
ability to react faster, and the majors? need to hold onto the cash to offset lackluster performance from
downstream operations.
In times of rising E&P activity, rigs and personnel availability always threaten to cap the expansion,
however, the Andersen survey doesn?t indicate that this is a concern. Respondents forecast a median U.S.
rig count of 800, which equates to current levels, and almost three-quarters of them see no shortage of
either land or offshore rigs in the U.S. this year. More than half of those answering the survey expects
industry employment to rise this year, and 38% already say they are experiencing a shortage of skilled
personnel.
Now, the bad news. Historically, government bureaucrats have professed support of a free market for oil
and gas. Trouble is, that support has been in only one direction ? down. And U.S. Secretary of Energy Bill
Richardson is proving that he?s no exception. Richardson last month said oil prices "are dangerously high"
and that he would consider action to stabilize prices if they continue to climb. This amounts to a threat to
sell oil from the U.S. Strategic Petroleum Reserve, which would lower prices and, in Richardson?s words,
"protect the American consumer and the American economy." Incidentally, this is a reversal of the stance
Richardson took in November when New York?s Senator Charles Schumer proposed selling oil from the
SPR.
Predictably, Richardson?s statements drew strong response from producers. Ray Plank, Chairman of
Apache Corp. said he "is out of line, out of order and should be fired." (Bravo, Raymond!) The president of
the Independent Petroleum Association of America warned that the secretary?s actions could be devastating
for the independent oil industry.
worldoil.com |
