Investment analysts see strong oil prices for 5 years

After more than a decade of depressed oil prices, the petroleum industry is now in a strong up cycle that should last for the next 5 years or longer, a panel of investment analysts said Monday morning. They spoke at a leadership and outlook conference in Houston sponsored by the Gulf Coast section of the Society of Petroleum Engineers.

May 21st, 2001


Sam Fletcher
OGJ Online

HOUSTON, May 21 -- After more than a decade of depressed oil prices, the petroleum industry is now in a strong up cycle that should last for the next 5 years or longer, a panel of investment analysts said Monday morning.

"God has rewarded us with California," said Julian West, senior director of Cambridge Energy Research Associates, at a leadership and outlook conference in Houston sponsored by the Gulf Coast section of the Society of Petroleum Engineers.

The burgeoning US market for natural gas is "the backbone of the best business cycle that the industry has ever seen," said John Olson, senior vice-president of the investment firm Sanders, Morris, Harris.

Despite what his critics say, US President George W. Bush probably understated the situation last week when he said the current US energy crisis is the worst since the 1970s, said Matthew Simmons, president of Simmons and Co. International, Houston, who moderated the panel of speakers.

Simmons said, "This is the first time we've been short of oil, natural gas, and electricity at the same time. It could actually destroy our economy."

Before the session started, Simmons told OGJ Online, "Most people don't have any idea just how bad this crisis is. It's not a California crisis: It's a world crisis."

Panelists said the large profits that oil and gas producers have accumulated over the past year must now be plowed back into drilling operations that will find production and benefit the service sector.

However, James K. Wicklund, managing director of investment research at Dain Rauscher Wessels Inc., said supply additions from incremental drilling were likely to be "muted and short term." Moreover, he said, as both new production and equipment are added, "I can almost guarantee you the market and prices will go down."

Wicklund noted that drilling activity essentially has doubled in the last 2 years, but with only a relatively small increase in natural gas production.

"Oil companies don't get paid [by Wall Street] for generating huge profits. They get paid for generating new production," he observed.

West told producers and service sector executives, "If you plan to do what everyone else in the business does, only faster, cheaper, and better, unless you're one of the largest companies, Wall Street is not going to believe you."

However, he said, "There is still an enthusiastic audience" for new approaches, "especially ones that reduce cycle time."

Contact Sam Fletcher at samf@ogjonline.com

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