By OGJ editors
HOUSTON, Dec. 8 -- Oil and natural gas operating companies' spending and drilling activities are expected to remain flat for the next few months, according to the monthly PatchWork Survey released last month by UBS Securities LLC analysts.
November's survey results "continue[d] to oscillate and have yet to provide a consistent trend in either direction," said UBS analyst James H. Stone. "Taken with other indicators, such as permitting and bidding activity, we expect drilling and spending to remain constant over the next 2 months," he said.
Expectations for service pricing in November's survey reached the same levels as a month earlier, Stone said, "and well below the highs of summer." Stone added, "Operators are increasingly optimistic that service price increases are not likely to happen. With activity expected to remain steady, we believe pricing will remain flat at best."
The biggest "stumbling block" for oil firms' drilling plans was in the Gulf of Mexico, Stone reported. "We asked all operators why they thought activity in the Gulf of Mexico remained at very low levels despite high commodity prices," the report said, to which a majority of respondents cited "capital that was being allocated to other projects" as the economics were "just not good enough in the gulf."
UBS's survey uses an index ranging from -100 to 100. Positive numbers indicate that an increase in activity or pricing is expected in the next 60 days. A negative number indicates a decrease in activity or pricing is expected during the same timeframe. A value of zero or close to it indicates that no change is expected during the next 60 days.
Spending plans
The spending index for November for the US and Canada jumped to "a very healthy level" of 43 from 32 last month, UBS reported. However, the analyst pointed out that "the see-sawing nature of the index over the past few months leads us to believe that there is too much uncertainty out there for any change to the status quo (but if there is any bias, it may be to the up side)."
The biggest change from last month's survey, UBS noted, was the number of respondents in the "increase" camp. "The percentage of respondents in the 'increase' camp is at the high end of this year's range," UBS said, adding, "We would be more confident that spending would pick up once we have two consecutive high readings."
Drilling, workover plans
UBS's drilling index for November rebounded, however slight, from last month, the analyst said. Stone said, "With the level of the drilling index see-sawing back and forth over the past few months, we would not be surprised to see the level of drilling activity remain stagnant until there is more of a sustained change in the trend." Drilling plans fell to levels not seen since late 2002, UBS reported.
The workover index, Stone noted, "stands at a somewhat anemic level, given how strong commodity prices remain." Stone called workover activity for most of 2003 "disappointing," especially with the current high level of oil and gas prices. "With the index at these levels and falling below its recent trend," Stone reckoned, "the bias is toward weakness."
Product-service pricing
Respondents to UBS's PatchWork Survey voiced their opinions about how pricing in a variety of key product and service areas is expected to change over the next 2 months. The overall pricing index fell to 13 for November from October's reading of 14. "We now believe that to get any significant pricing power, service companies will need to see the [US] rig count approach 1,200," UBS forecast.
UBS found, "Pricing expectations in the US [for products and services] were relatively flat with [October's] readings and stand at a level not seen since February." Stone concluded, "Relatively flat activity, combined with excess capacity, has prevented service companies from realizing price increases. We do not expect any changes to the current low price environment soon."