Optimism grows about US drilling action increase in 2003
Oil & Gas Journal, last week's issue
US drilling activity should increase in 2003, said a panel of energy industry
executives in Houston Oct. 4.
The up cycle will be largely driven by natural gas, as well as the strengthening
relationship between operating companies and contract drillers, said panelists
at the 16th biannual Oilfield Breakfast Forum sponsored by Resource Marketing
International and Randall Morton International Inc., both of Houston.
Despite recent run-ups in both oil and natural gas prices, US drilling
activity hasn't yet picked up primarily because cash flow among operators
is still down 25% from last year, said James D. Crandell, managing director
and senior oil service analyst at Lehman Bros. Inc. "That's the most important
factor," he said.
Natural gas-driven recovery
However, Crandell sees a natural gas-- driven recovery in US drilling operations
starting next year. With sharper production decline curves on new discoveries
in recent years, US gas production is expected to drop 5% this year and
3% in 2003, Crandell said. "We need 900-1,000 rigs drilling for gas just
to maintain current domestic production levels," he explained.
"We must explore for the good of our country and the survival of our industry,"
said Jim Lightner, chairman, president, and CEO of independent exploration
and production company Tom Brown Inc., Denver.
Lightner told industry representatives at the forum that the Rocky Mountains
represent "the single largest untapped onshore natural gas basin in the
US." It holds 41% of the estimated proven and potential US gas reserves,
he said. Yet, Lightner complained, access of Rocky Mountain gas to US markets
remains restricted because of lack of pipeline infrastructure. As a result,
he said, Rockies gas still sells at a subsequent discount to other gas
on the market. Market prices for Rockies gas are projected to improve as
more pipeline capacity is added.
Meanwhile, Lightner called for improved technology to help identify the
"sweet spots" of unconventional gas deposits in the Rockies and to improve
drilling and completions.
Up-cycle forecast
Crandell also said he expects a "global up cycle" in 2003-05, with economic
recovery starting next year and oil prices remaining above $20/bbl. Lehman
Bros. projects oil prices to average$24.25/bbl next year, with US natural
gas prices pegged at $3.50/Mcf
As a result of that upturn, the stock prices of some oil service companies
"could double in the next 2-3 years," Crandell predicted. He identified
potential business growth areas in underbalanced drilling, expandable screens
and tubulars, subsea completions, deep shelf drilling operations in the
Gulf of Mexico, and drilling in the nations of the former Soviet Union.
Gas prices above $3/Mcf would translate into "very good business" for drilling
contractors and others in the industry, said C.R. Palmer, chairman, president,
and CEO of Rowan Cos. Inc., Houston, an international drilling contractor
with operations concentrated in the North Sea, Canada, and Gulf of Mexico.
"If it goes to SS/Mcf, that would be heaven. But if it goes to $9/Mcf,
we'll be in trouble again" as demand for gas would again decline in favor
of conservation and cheaper fuels.
"True prosperity continues to elude the drilling industry," said Palmer.
"We (Rowan) are currently profitable, but just barely." He said that "conflict"
between oil field contractors and their clients continues "over value vs.
price."
Operator-contractor relations
Raymond I. Wilcox, president of North American upstream operations at ChevronTexaco
Corp., said his company-like virtually all of the major producers-is focusing
on partnering arrangements with select lists of key contractors and suppliers.
In the selection of contractors and suppliers at ChevronTexaco, he declared,
"Operational emphasis on safety will be a gatekeeper."
When asked if ChevronTexaco is willing to pay extra to those contractors
and suppliers who can document better performance records, Wilcox responded
with a firm "yes."
Furthermore, he said, "It makes no sense to squeeze (contractors and suppliers)
to where there's no profit left (for them), but we do want the most return
for our money."
Palmer warned those in attendance that the "game" of upgrading existing
rigs to generate more cash flow "is just about over." He said 20-year-old
mobile offshore rigs, even when upgraded, cannot continue to compete with
newbuild rigs coming into the market.
The number of competing jack up rigs will be reduced as retirements and
other removals of existing rigs outpace new additions over the next 5-10
years, Palmer forecast. |
