PatchWork Survey: Drilling activity, spending levels to remain unchanged going into 2003

By OGJ editors

HOUSTON, Dec. 9 -- Recent survey results suggest that drilling activity levels and oil and natural gas operators' spending levels worldwide will remain unchanged going into January, said UBS Warburg LLC in its December PatchWork Survey.

The survey compiles responses from oil and gas operating personnel, who are polled monthly as to their expectations of price and activity levels.

The latest poll showed "more of the same" with US drilling activity expected to rise modestly. No sharp changes were anticipated in either the US or worldwide. Virtually no responses were received from Canada for the December poll results.

"We had hoped this month's results might give us some insight into 2003 activity levels and particularly spending trends," said UBS analyst James Stone in New York. "But after giving the subject more thought, we believe that this is more likely to be the case next month when final budget and activity schedules have been communicated throughout the organization of an oil company." he said.

Respondents said their budgets were based on an average oil price of $22.60/bbl and an average gas price of $3.13/Mcf.

"The gas number jumped significantly from last month, so operators appear to be more convinced that higher prices are sustainable," Stone said.

"Oil field service stocks have risen in a saw tooth manner over the past 2 months, and we think that the group has broken out of the trading range that it has been in since last spring," Stone said, adding that valuations still are below mid-cycle levels.

Survey results
"Only 14% of (US) operators plan to reduce spending in the next 60 days while 45% plan no change, and 41% plan to increase. There was a shift from both the 'increase' and 'decrease' camps into the 'no change' camp from last month's results," Stone said.

Outside the US and Canada, 18% of operators plan to decease spending while 36% plan no change, and 45% plan an increase. "The breakdown between the three categories was virtually unchanged from last month," Stone said.

When asked about drilling plans, 39% of US respondents said they plan to increase drilling, 18% plan to decrease it, and 43% do not plan any changes. Outside the US and Canada, 27% plan an increase, 18% a decrease, and 55% do not plan any change in drilling levels.

On the workover front, most operators plan no changes in activity. In the US, 25% plan an increase, 15% plan a decrease, and 60% plan no change. Outside the US and Canada, 44% plan an increase, 22% a decrease, and 33% plan no change.

"In terms of seismic activity, 13% of (US) respondents plan to increase in activity, while 26% to decrease, and 61% plan no change. Overseas, the sentiment was neutral with 25% planning increases, 25% decrease, and 50% planning no change," Stone said.

He said questions regarding seismic activity and pricing were included in the December survey "due to popular demand. . . . We will need several months of data to begin detailing trends in the seismic industry."

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