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Politics : High Tolerance Plasticity -- Ignore unavailable to you. Want to Upgrade?

To: jim_p who wrote (5805)	7/6/2001 11:00:48 PM
From: Sweet Ol	Respond to of 23153

I agree that it doesn't take near as many rigs/wells today to achieve similar results. But, my memory is that we did better than 10%, more like 20%. But my memory is not what it used to be and it is easy to forget dry holes<ggg>. Still, 4 times as many rigs running is a lot. It seemed like everybody had a lot of good prospects. I have been away from the patch for a long time, so you are more likely to be right than me. That is why I am short for the near term. But I have a feeling that the supply pinch may return sooner than we think. Someone else thinks that way also. Almost all the E&P's & Royalty Trusts I watch went up today. Including APC, where I am short, but nervous. The chart looks like it is going up some more. I may cover Monday morning if it goes up some more. By the way, thanks for the short suggestions. I much prefer long to short, but I prefer short to not making money. I suspect I am going to get used to it in the next year. Best to all, John

To: jim_p who wrote (5805)	7/7/2001 1:20:17 AM
From: Elmer	Read Replies (2) \| Respond to of 23153

According to Baker Hughes historical rig count data, on an annual average basis, the maximum rigs operating occurred in 1982 at 3969 (ave. for the year). 1981 had an average of 3117 and 1980 had an average of 2909. Unfortunately, BHI did not break our rig counts by oil and natural gas back then. According to the EIA, during this three-year drilling boom, new field discoveries were 2.5TCF, 3.7TCF, and 2.7TCF in 1980, 1981, and 1982, respectively. Again, according to the EIA, during the most recent three-year drilling upcycle (1996-1998), there were new field discoveries of 1.5TCF, 2.7TCF, and 1.1TCF, for the years 1996, 1997, and 1998, respectively. According to the American Petroleum Institute, during the 1980-1982 drilling upcycle, natural gas production per natural gas well averaged around 100MMCF/Well. Whereas, again according to the American Petroleum Institute, during the 1996-1998 drilling upcycle, natural gas production per natural gas well averaged around 60MMCF/Well. Also, interesting to note that, according to the EIA, in 1980 total natural gas reserves were 201TCF versus 167.4TCF at the start of 2000. Technology has been more important in getting oil and gas out of wells faster (i.e. higher NPV's and IRR's, but also higher decline rates) and in lowering the exploration and development cost enough to make smaller targets more economical. 3D-seismic, directional drilling, LWD, MWD, and better bits and fluids are some of the many examples of new or improved technology that has improved the efficiency of operators. Decline rates have more than doubled in the past decade alone. Bottom Line: we are going to have to drill up a storm over the next five years to meet future demand for natural gas. The only way to entice the type of drilling activity we are going to need is with natural gas prices high enough for operators to earn a rate of return higher than their cost of capital. What is the price needed? Tough question, but my somewhat educated guess is at least $3.50 on average. Obviously, we will have periods of time significantly above and below $3.50, but on average my guess is we need $3.50. I think we are just going through one of those short-term periods where natural gas prices are below the threshold level. I do find it interesting that we are staying above $3.00 given where storage levels are at for this point in the season. Perhaps, the natural gas market is building in some sort of long-term, fundamental premium to historical gas storage/price relationships given the recognition of the long-term structural problems that may persist in meeting future natural gas demand??? Maybe, full storage going into the withdrawal season means $3.00 natural gas and not the historical $2.00 to $2.50 range associated with full storage??? Could be wishful thinking, but it makes some sense to me!