Fitch Ratings: US upstream outlook is positive for 2003-04

June 12, 2003
The outlook for the US upstream oil and natural gas industry during 2003-04 generally is positive, Fitch Ratings Ltd. analyst Sean Sexton, senior director of the oil and gas group, said during a Thursday teleconference briefing.

By OGJ editors
HOUSTON, June 12 -- The outlook for the US upstream oil and natural gas industry during 2003-04 generally is positive, Fitch Ratings Ltd. analyst Sean Sexton, senior director of the oil and gas group, said during a Thursday teleconference news briefing.

Fitch bases its expectations on West Texas Intermediate crude oil prices averaging $27/bbl during 2003 and $21/bbl during 2004. It forecast average Henry Hub natural gas prices at $4.50/Mcf for 2003 and $3/50 Mcf for 2004.

The 2003-4 price forecasts were set in early March and probably are low, particularly for gas, Sexton noted. But Fitch analysts will monitor the gas environment before deciding whether to "potentially raise our price decks," he said.

For example, the 12-month strip in early 2001 was $6.20/Mcf, but in actuality the 2001 Henry Hub natural gas price averaged $3.96/Mcf. "So sometimes, the strip can certainly be off," Sexton said.

"We think there are some similarities to 2001 in the current environment for natural gas, but we need to do better than 2001, as far as injections go, to get us back to the 3 tcf area at the beginning of November," Sexton said.

Significant Iraqi crude oil exports are not expected to return to the world markets in the immediate future, Sexton said, adding he expects to see Iraqi exports influencing world oil markets in late 2003.

Fitch analysts expect that global oil demand will grow about 1% in 2003, he said.

Downstream analyst Bryan Caviness said the US refining sector will report "solid" earnings for the second quarter, but the result will not be as strong as the first quarter earnings reports (OGJ Online, June 3, 2003).

Drilling and services analyst Patrick McGeever said the natural gas rig count should trend upward throughout 2003. He expects that jack up rig utilization and day rates will rise going into early 2004. An increasing number of jack up rigs are expected to leave the US for drilling contracts in Mexico, McGeever said.