More natural gas drilling likely

Sam Fletcher
Senior Writer

A "higher-than-expected level of drilling" is likely in the near future since already robust activity has failed to stem declines in US natural gas production, say industry analysts.

US natural gas production has fallen on a year-to-year basis in 10 of the past 12 months reported (May 2004-April 2005), despite a double-digit increase in the number of rigs drilling for natural gas, said analyst W. Kevin Wood in a July 14 report from Susquehanna Financial Group LLLP in Bala Cynwyd, Penn.

"The average number of rigs drilling for natural gas increased 20% over the same period," he said. "The average US rig count is up 15% thus far in 2005, although we expect growth to moderate in the second half of the year following a strong activity increase in the second quarter."

Drilling for natural gas was particularly robust, with the US natural gas rig count up 7.8% sequentially in the second quarter vs. 2.7% growth in the first quarter, Wood said.

Despite recent declines in the number of rigs drilling exploration wells for natural gas, US gas exploration activity is still 55% higher than a year ago, said Paul Horsnell, an analyst with Barclays Capital Inc. in London.

The second quarter is often a period of gas demand and price weakness, said Bernard J. Picchi, senior managing director, Foresight Research Solutions LLC, New York. But this year strong demand drove natural gas prices to $6.95/MMbtu on the New York Mercantile Exchange, a record high for a second quarter, he said.

"Compelling drilling economics will likely justify significant increases in activity over the next several years," said J. Marshall Adkins in the Houston office of Raymond James & Associates Inc. in a July 11 report. "This trend appears most pronounced in the US, where record profitability for oil and gas producers and a very tight rig market has resulted in dramatically higher rig rates and a number of rig refurbishment and new-build project announcements."

Service companies benefit
Adkins said the stage is set for a significant and prolonged increase in drilling activity. "From an investment perspective, we believe that the oil service industry will be the prime beneficiary of this trend. In the near term, drilling contractors and rig-related manufacturing companies will likely see the most cash flow leverage to the capital dollars flowing into this sector," he said.

Basic market fundamentals for the oil field service industry improved steadily in the second quarter of this year. As a result, Wood expects service companies to realize sequential pricing gains of 1.5%. "We expect prices to be higher for nearly all oil field products and services, with the strongest gains for pressure pumping services, drillbits, and coiled tubing and wireline logging services," Wood said. Several oil field service companies already have initiated price increases in the second quarter, he said.

Wood cited recent data from the US Bureau of Labor Statistics that indicate pricing for oil field goods and services continues to rise. "The 'oil and gas support activities' component of the producer price index is on pace to increase 2% sequentially in the second quarter. Through the first 5 months of 2005, the index is up an average of 12.5% from a year earlier," he said.

Despite concerns among some observers that capacity additions would suppress pricing in the $9 billion pressure pumping market, Wood said, "Evidence suggests that the US pressure pumping market continued to tighten in recent months."

Canadian activity
The seasonal decline in Canadian drilling activity when the movement of rigs is restricted by the spring thaw appeared this year to be "milder than normal, despite comments to the contrary," Wood reported.

The number of Canadian rigs involved in conventional drilling declined by 51% to 246 this spring. The number of active workover rigs was down by 43% to 441 units. "We expected a 60% reduction in activity this season," Wood said. "Over the past 10 years, seasonal weather delays cut the conventional rig count by 52% and the workover rig count by 41% in the second quarter."

He noted that several oil field service providers had reported that wet weather contributed to a slower-than-normal return to drilling activity in Canada after the thaw. "However, rig counts suggest drilling activity returned at normal levels. In fact, average conventional and workover rig counts were at record levels for the second quarter and up 32 rigs and 21 rigs, respectively, year over year," Wood said.

(Online July 18, 2005; author's e-mail: samf@ogjonline.com)


Related Articles

Mexico uses PSCs in first Round One step

12/19/2014 Mexico is offering production-sharing contracts to companies incorporated in the country for exploration of 14 shallow-water areas in Round One bid...

BASF, Gazprom cancel asset swap

12/19/2014

BASF and OAO Gazprom have agreed not to complete an asset swap that was scheduled for yearend.

Wintershall hikes estimates of recoverable resources for Maria field

12/18/2014 Wintershall Holding GMBH reported higher recoverable resource estimates for the Maria field in the Norwegian Sea. The revised estimate is 180 milli...

Moody’s: Mid-term elections dim federal fracing regulation prospects

12/18/2014 Results of 2014’s congressional elections have reduced the prospect of the federal government enacting its own hydraulic fracturing regulations, Mo...

MEG Energy cuts capital spending for 2015 to $305 million (Can.) from $1.2 billion

12/18/2014

MEG Energy Corp., Calgary, is reducing its 2015 capital spending plans to $305 million (Can.) from the original budget of $1.2 billion.

Severance tax would backfire, Pennsylvania association leaders warn

12/17/2014 Enacting a severance tax aimed at Pennsylvania’s unconventional natural gas activity would substantially harm the commonwealth beyond the industry ...

New York state moves to ban hydraulic fracturing

12/17/2014 High-volume hydraulic fracturing will be banned in the state of New York, Gov. Andrew Cuomo’s administration announced Dec. 17, citing health risks...

Rumaila to ramp up production 50% by end of decade

12/17/2014 The Rumaila Operating Organization (ROO)—a partnership of South Oil Co., BP PLC, PetroChina Co. Ltd., and Iraq’s State Oil Marketing Organization (...

Norway production declined in November, NPD says

12/17/2014

Norway’s liquids production averaged 1.939 million b/d in November, about 1% less than October, the Norwegian Petroleum Directorate reported.

White Papers

AVEVA NET Accesses and Manages the Digital Asset

Global demand for new process plants, power plants and infrastructure is increasing steadily with the ...
Sponsored by

AVEVA’s Approach for the Digital Asset

To meet the requirements for leaner project execution and more efficient operations while transferring...
Sponsored by

Diversification - the technology aspects

In tough times, businesses seek to diversify into adjacent markets or to apply their skills and resour...
Sponsored by

Engineering & Design for Lean Construction

Modern marketing rhetoric claims that, in order to cut out expensive costs and reduce risks during the...
Sponsored by

Object Lessons - Why control of engineering design at the object level is essential for efficient project execution

Whatever the task, there is usually only one way to do it right and many more to do it wrong. In the c...
Sponsored by

Plant Design for Lean Construction - at your fingertips

One area which can provide improvements to the adoption of Lean principles is the application of mobil...
Sponsored by

How to Keep Your Mud System Vibrator Hose from Getting Hammered to Death

To prevent the vibrating hoses on your oilfield mud circulation systems from failing, you must examine...
Sponsored by

Duty of Care

Good corporate social responsibility means implementing effective workplace health and safety measures...
Sponsored by

Available Webcasts


On Demand

Optimizing your asset management practices to mitigate the effects of a down market

Thu, Dec 11, 2014

The oil and gas market is in constant flux, and as the price of BOE (Barrel of Oil Equivalent) goes down it is increasingly important to optimize your asset management strategy to stay afloat.  Attend this webinar to learn how developing a solid asset management plan can help your company mitigate costs in any market.

register:WEBCAST


Parylene Conformal Coatings for the Oil & Gas Industry

Thu, Nov 20, 2014

In this concise 30-minute webinar, participants have an opportunity to learn more about how Parylene coatings are applied, their features, and the value they add to devices and components.

register:WEBCAST


Utilizing Predictive Analytics to Optimize Productivity in Oil & Gas Operations

Tue, Nov 18, 2014

Join IBM on Tuesday, November 18 @ 1pm CST to explore how Predictive Analytics can help your organization maximize productivity, operational performance & associated processes to drive enterprise wide productivity and profitability.

register:WEBCAST


US HYDROCARBON EXPORTS Part 3 — LNG

Fri, Nov 14, 2014

US LNG Exports, the third in a trilogy of webcasts focusing on the broad topic of US Hydrocarbon Exports.

A discussion of the problems and potential for the export of US-produced liquefied natural gas.

These and other topics will be discussed, with the latest thoughts on U.S. LNG export policy.

register:WEBCAST


Careers at TOTAL

Careers at TOTAL - Videos

More than 600 job openings are now online, watch videos and learn more!

 

Click Here to Watch

Other Oil & Gas Industry Jobs

Search More Job Listings >>
Stay Connected