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

Statoil reduces capital budget by $2 billion following 4Q losses

02/06/2015 Statoil ASA has reduced its organic capital expenditure to $18 billion in 2015 from $20 billion in 2014. The move comes on the heels of a fourth qu...

Oil-price collapse may aggravate producing nations’ other problems

02/05/2015 The recent global crude-oil price plunge could be aggravating underlying problems in Mexico, Colombia, and other Western Hemisphere producing natio...

Oil production begins at Nasr Phase-1 offshore Abu Dhabi

02/05/2015 The first phase of Nasr oil field offshore Abu Dhabi will be producing 22,000 b/d by yearend, according to United Arab Emirates news agency WAM.

Woodside lets FEED contract for Greater Western Flank project

02/05/2015 Woodside Petroleum Ltd. has let a contract to Wood Group Kenny for the front-end engineering and design for the flowline system and associated proc...

Deloitte studies oil supply growth for 2015-16

02/04/2015 A Deloitte MarketPoint analysis suggested large-field projects, each producing more than 25,000 b/d, could bring on 1.835 million b/d in oil supply...

BG’s 2015 budget ‘significantly lower than 2014’

02/03/2015 BG Group plans capital expenditures on a cash basis of $6-7 billion in 2015, a range it says is “significantly lower than 2014” due to “a lower oil...

BP trims capital budget by $4-6 billion

02/03/2015 BP PLC plans an organic capital expenditure of $20 billion in 2015, down from the previous guidance $24-26 billion. Total organic capital expenditu...

IHS sees second-half end of US output surge

02/03/2015

Expectations are moderating about growth of oil production in the US this year.

Gazprom Neft starts shale oil production in western Siberian field

02/03/2015 JSC Gazprom Neft reported start of shale oil production from the Bazhenov formation during tests of two wells in southern Priobskoye field in centr...
White Papers

Pipeline Integrity: Best Practices to Prevent, Detect, and Mitigate Commodity Releases

Commodity releases can have catastrophic consequences, so ensuring pipeline integrity is crucial for p...
Sponsored by

AVEVA’s Digital Asset Approach - Defining a new era of collaboration in capital projects and asset operations

There is constant, intensive change in the capital projects and asset life cycle management. New chall...
Sponsored by

Transforming the Oil and Gas Industry with EPPM

With budgets in the billions, timelines spanning years, and life cycles extending over decades, oil an...
Sponsored by

Asset Decommissioning in Oil & Gas: Transforming Business

Asset intensive organizations like Oil and Gas have their own industry specific challenges when it com...
Sponsored by

Squeezing the Green: How to Cut Petroleum Downstream Costs and Optimize Processing Efficiencies with Enterprise Project Portfolio Management Solutions

As the downstream petroleum industry grapples with change in every sector and at every level, includin...
Sponsored by

7 Steps to Improve Oil & Gas Asset Decommissioning

Global competition and volatile markets are creating a challenging business climate for project based ...
Sponsored by

The impact of aging infrastructure in process manufacturing industries

Process manufacturing companies in the oil and gas, utilities, chemicals and natural resource industri...
Sponsored by

What is System Level Thermo-Fluid Analysis?

This paper will explain some of the fundamentals of System Level Thermo-Fluid Analysis and demonstrate...
Available Webcasts


Prevention, Detection and Mitigation of pipeline leaks in the modern world

When Thu, Apr 30, 2015

Preventing, detecting and mitigating leaks or commodity releases from pipelines are a top priority for all pipeline companies. This presentation will look at various aspects related to preventing, detecting and mitigating pipeline commodity releases from a generic and conceptual point of view, while at the same time look at the variety of offerings available from Schneider Electric to meet some of the requirements associated with pipeline integrity management. 

register:WEBCAST



On Demand

Global LNG: Adjusting to New Realities

Fri, Mar 20, 2015

Oil & Gas Journal’s March 20, 2015, webcast will look at how global LNG trade will be affected over the next 12-24 months by falling crude oil prices and changing patterns and pressures of demand. Will US LNG production play a role in balancing markets? Or will it add to a growing global oversupply of LNG for markets remote from easier natural gas supply? Will new buyers with marginal credit, smaller requirements, or great need for flexibility begin to look attractive to suppliers? How will high-cost, mega-projects in Australia respond to new construction cost trends?

register:WEBCAST


US Midstream at a Crossroads

Fri, Mar 6, 2015

Oil & Gas Journal’s Mar. 6, 2015, webcast will focus on US midstream companies at an inflection point in their development in response to more than 6 years shale oil and gas production growth. Major infrastructure—gas plants, gathering systems, and takeaway pipelines—have been built. Major fractionation hubs have expanded. Given the radically changed pricing environment since mid-2014, where do processors go from here? What is the fate of large projects caught in mid-development? How to producers and processors cooperate to ensure a sustainable and profitable future? This event will serve to set the discussion table for the annual GPA Convention in San Antonio, Apr. 13-16, 2015.

This event is sponsored by Leidos Engineering.

register:WEBCAST


The Future of US Refining

Fri, Feb 6, 2015

Oil & Gas Journal’s Feb. 6, 2015, webcast will focus on the future of US refining as various forces this year conspire to pull the industry in different directions. Lower oil prices generally reduce feedstock costs, but they have also lowered refiners’ returns, as 2015 begins with refined products priced at lows not seen in years. If lower per-barrel crude prices dampen production of lighter crudes among shale plays, what will happen to refiners’ plans to export more barrels of lighter crudes? And as always, refiners will be affected by government regulations, particularly those that suppress demand, increase costs, or limit access to markets or supply.

register:WEBCAST


Emerson Micro Motion Videos

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