By OGJ editors
HOUSTON, Feb. 10 -- Oil and natural gas companies expect to increase North American drilling and spending plans, but spending on workovers and seismic services likely will remain flat, UBS Warburg LLC said in its monthly PatchWork Survey.
However, workover plans maintain strong momentum from January. The February survey was taken in late January. The 11-month-old UBS Warburg survey gauges near-term expectations and trends for commodity prices, oil field activity, and oil field services and product pricing. Data comes from oil company operating personnel.
The survey responses underpin an index pegged to a weighted average ranging from 100 to �100. The size of a positive value indicates the relative sentiment for an increase in that price or activity, and the converse is true for the negative values.
In the US and Canada, the spending index climbed to 47 from 35 last month. "The plan to increase spending therefore continues to increase," a summary of survey results said. For the rest of the world, the spending index fell to 50 from 60 last month. "International results tend to be more volatile, and we consider this month's result to be relatively flat with last month," the summary added.
Analyst James A. Stone said, "New budgets appear to be in place, and rising oil company cash flows are starting to have an impact. . . . Pricing should be stable in North America after months of heavy discounting."
Stone expects the US and Canadian rig counts to continue upward for 60 days.
The number of respondents to the February survey rebounded compared with low holiday season response levels for the January survey. Most of the responses were from the US and Canada. Responses from the rest of the world continued to be lower, so the rest of the world survey results are "quite volatile," UBS Warburg said.
Rig rates, drilling plans
Pricing expectations in the US were mixed with expectations for higher rig rates posting the biggest increase over January. Drilling plans in the US and Canada continued to trend upward as the drilling index rose to 44 from 37 last month.
Drilling activity plans for the rest of the world also rose, reaching 47 for February compared with 30 in January. The trend bodes well for increasing rig counts worldwide, UBS Warburg said.
"Since high commodity prices have not moved the stocks, we believe that actual improvements in the US rig count will be a key driver. The rig count has increased as expected and is nearing the highest level since last May," the survey summary said.
Workover activity plans were flat between January and February. In the US and Canada, the workover index was 28 in February compared with 31 in January. For the rest of the world, the index dropped to 38 from 44. "But the drop is probably not significant enough to indicate a material shift in plans," Stone said.
In terms of seismic activity, the North American index remained unchanged, registering 2 in both February and January. Internationally, the index climbed to 7 from �10 in January, implying a possible improvement in seismic acquisition services, or at least a bottoming in the declining activity.
6- and 12-month outlook
Both 6- and 12-month sentiment indicators trended higher worldwide in February, survey results showed. Respondents rated their outlook on the state of the industry from 1-10, with 1 representing expectations of much weaker than current conditions and 10 representing expectations of much stronger than current conditions.
US and Canadian operators rated the 6-month outlook at 6.5, up from 6.2 last month, and the 12-month outlook at 6.6, up from 6.5 last month.
"We were surprised last month that short-term sentiment was not increasing with the continued high commodity prices. It appears as through that may finally be working its way into operators' psyches," said Stone.
"The 12-month index is at the bottom of its historical range, which although still bullish (note our caution on the positive bias in all of the numbers), may indicate that operators are harboring some doubts about the longer-term sustainability of oil and gas prices," he said.
For the rest of the world, the 6-month number was 6.3, up from 6 last month, and the 12-month figure was 6.8, up from 6.4 in January.