By OGJ editors
HOUSTON, Jan. 19 -- Oil service companies are expected to experience higher profitability throughout 2005 than in 2004 because of high oil and natural gas prices, strong demand, and an improving world economy, said Jefferies & Co. Inc., New York.
"The need for oil companies to find and develop new reserves will fuel rising upstream capital spending," Stephen D. Gengaro, Jefferies oil service analyst, said in a Jan. 17 research note. "We are currently projecting 2005 upstream capital spending to rise between 8-12% from solid 2004 levels."
He believes the world is "in the midst of an energy supply crisis that will help support oil field activity for at least 3-4 years, and possibly longer."
Jefferies has forecast the average US rig count this year at 1,250. Its Canadian rig count forecast is 390 rigs, and the forecast for the rest of the world is 875 rigs.
Seismic
Seismic activity and prices also are improving, Gengaro said.
"Recent conversations with seismic companies confirm that activity on the marine contract market is picking up with demand seemingly outstripping supply," he said. "A flurry of activity by the national oil companies in the Far East, which has taken up significant supply, has led to robust bidding activity for the North Sea and Gulf of Mexico."
Consequently, marine contract pricing has trended higher in recent months for work during 2005, and contract terms on new awards appear to be more favorable to the seismic contractors, he noted.
"Additionally, the upcoming lease expirations in the deepwater Gulf of Mexico and continued interest in the deep gas plays in the gulf should boost the bottom line for companies exposed to the multiclient business," Gengaro said.