API notes 1999 drop in drilling expenditures

After 4 years of increases, US oil and gas drilling expenditures fell in 1999, the American Petroleum Institute reported. According to the 1999 Joint Association Survey on Drilling Costs, the industry spent 15.2% less in 1999 to drill and equip wells than it did in 1998.


After increases in 1995 through 1998, US oil and gas drilling expenditures fell in 1999 from the previous year, the American Petroleum Institute reported at its annual meeting Nov. 13 in Washington, DC.

Also, Daniel Yergin, chairman of Cambridge Energy Research Associates, urged US oil companies to promote energy conservation.

And the New York Mercantile Exchange (NYMEX) said it has agreed to license Platts price assessments and benchmarks for forward contracts traded and cleared on an internet exchange scheduled for launch in the first quarter of 2001.

Drilling costs

The cost per well and cost per foot of the average completed well in the US set records in 1999.

American Petroleum Institute said the costs of all US wells, including dry holes, averaged $856,149/well and $152.02/ft in spite of a 3.3% decline in average footage per well. The 1999 cost per well was 10% higher than the 1998 figure, and the cost per foot was up 14.8% on the year.

The institute�s annual Joint Association Survey on Drilling Costs shows that operators drilled 17,419 wells of all types last year at a total cost of $14.9 billion. That 15.2% drop followed increases in each of the previous four year-to-year periods.

API said the 1999 spending decrease occurred because of the lag time between the return to higher, more stable oil prices and the ramping up of drilling activity and because of industry reorganization.

The industry spent more drilling for gas than oil for the 12th straight year. Gas spending took 51% of total expenditures in 1999, oil 24%, and dry holes the rest.

The total-well records in cost per well and cost per foot stemmed from an emphasis on offshore objectives in the 10,000-12,500 ft to 20,000 ft and deeper categories, both exploratory and development, API said.

Drilling and completing wells in steadily deeper waters, operators spent $6.7 billion offshore in 1999. The number of offshore oil wells drilled and their costs rose 28% and 48%, respectively, from 1998. Exploration in the U.S. offshore remained confined almost entirely to the Gulf of Mexico region where drilling and completion activities accounted for nearly 98% of all offshore expenditures in 1999.

Onshore exploratory gas drilling held steady in 1999 largely due to activity concentrated in Central Alabama, North Texas RRC 9, East Texas RRC 3, and those areas of the Rockies�northern New Mexico, Montana, and Wyoming�where drilling in recent years remains increasingly focused on gas, especially coalbed methane work.

Conservation

Yergin said US oil companies should resist government intervention and promote conservation. He said prices in the residential sector of the electric power market have grown to a level near the "point of friction" likely to trigger government activity.

He also called for efforts to "get beyond this dichotomy between energy and the environment." He recommended, for example, that the industry encourage policy-makers "see natural gas as part of environmental policy."

On other subjects, Yergin predicted continued pressure on oil company managers from institutional shareholders, who will persistently ask, "Show me why I should own this business" and shift their attention-and investment funds-from industry to industry.

Among other global tends, Yergin expects no major return to nationalization but possibly an intensification of regulation by governments. The regulation likely will be based more on markets than before and will accommodate growing company scale.

And he noted, "People don't get what a technology-based industry this is."

Internet exchange

NYMEX said it would license Platts price assessments and benchmarks for forward contracts traded and cleared on an internet exchange scheduled for launch in the first quarter of 2001.

The contracts cover crude oil, oil products, natural gas, electricity, and metals. The internet trading system has the propriety name "enymex."

The nonexclusive license includes access to the Platts real-time general commodity news service.

NYMEX planned to convert on Nov. 15 to a for-profit structure in a process called demutualization. On Oct. 24 it received notice from the Internal Revenue Service that demutualization would have no tax consequences for it or any of its members.

The name was to change to New York Mercantile Exchange Inc. when the organization became a for-profit membership corporation under Delaware law. A new stock-holding company called NYMEX Holdings Inc. was to own all economic interests and most of the voting control in Nymex Inc.

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