Rig shortage to stunt oil output growth for years
Tue Sep 19, 2006 8:36 AM GMT
LONDON (Reuters) - A global shortage of rigs will hamper attempts to raise global oil and gas output for years, oil service company executives and consultants said on Monday.
As producers look to boost crude and gas output to meet soaring demand growth, the global supply of rigs is stretched to the limit and is insufficient to meet industry needs.
"To get up to speed to meet the drilling needs of the industry, it's going to take a lot of time," said Pete Miller, Chief Executive of oil drilling equipment maker National Oilwell Varco.
Many rigs in service need to be replaced, Miller told an oil industry conference in London. He said the average age of rigs worldwide is now older than the average age at which they would typically be scrapped.
"We have a problem, it's real and it's going to be extremely tough to deal with," Matthew Simmons, Chairman of Houston-based energy investment bank Simmons & Company International, said at the same event.
"We are in a rusty industry. We have the world heading to astonishing growth in oil and gas demand. To meet that demand envisages an awful lot of drilling."
Simmons said that more than 20 years of recession in the oil services industry from the early 1980s had left rig builders in a poor state to meet surging demand.
Rapid decline rates in some of the world's mature producing areas meant that even more drilling was needed, Simmons said.
"Countries or fields that are post-peak production need exponentially more drilling," he said.
New rigs that are being built to plug the gap in China and India will not solve the issue as many of the designs being used are old, both Miller and Simmons said.
Those rigs will not have the technology needed for directional drilling and working on high-pressure reservoirs, Miller said.
Miller said shareholder pressure for oil service companies to spend cash revenues on share buybacks and dividends had not helped the industry to build capacity since the recession ended.
"Buybacks are good for sharholders in the short term, but not for the industry in the long term," he said
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