By OGJ editors
HOUSTON, Jan. 12 -- Increases in oil and gas companies' spending plans in the US and Canada indicate robust oil service fundamentals and drilling activity levels in the near term, said UBS Warburg LLC in its latest monthly PatchWork Survey.
The survey compiles responses from oil and gas operating personnel, who are polled monthly about their expectations of price and activity levels.
UBS services analyst James H. Stone of New York also asked operators about their expectations for oil and gas prices for 2005. Most operators expect spot prices of West Texas Intermediate crude in the $35-45/bbl range and New York Mercantile Exchange gas futures prices in the $5-6/MMbtu range.
The average implied price expectation was $36.50/bbl for oil and $5.30/MMbtu for gas, Stone said, considerably below current prices.
"Operators expect the current environment of high oil and natural gas to remain through 2005," Stone said. "This confirms the sharp increase in expectations for seismic acquisition activity since operators will only invest in exploration if they believe that oil and gas prices will stay high long enough to reap the rewards of their investment."
The January spending index for the US and Canada increased to 55 from 45 in December. The index is a weighted average ranging from plus 100 to minus 100. The size of a positive value indicates the relative sentiment for an increase in that price or activity, and the converse is true for the negative values.
Stone attributed the December decline to seasonality.
"The spending index this month is also much higher than the spending index of 42 from January 2004," he said. "We expect the spending index to continue to rise as operators start to execute their 2005 [capital expenditure] plans."
Of US and Canadian operators surveyed, 61% expect to increase spending during the next 60 days, while 33% plan no change, and 6% plan a decrease.
The drilling index for the US and Canada rebounded to 48 from December's value of 35, indicating robust drilling plans. The drilling index was 45 in January 2004.
"The rebound suggests further growth into 2005 in activity levels, despite high current rig utilization, which may constrict volume growth more than a shortage of demand," Stone said.
For workovers, 52% of US and Canadian respondents plan increases, 1% plan decreases, and 47% plan no change. The workover index increased to 50 from 40 in December. The workover index is close to its high of 51.
The seismic acquisition index increased sharply to 20—a record high since the survey was started in March 2002.
"The increase indicates that operators might be starting to focus more on exploration activities," Stone said. "This is a welcome trend, especially since operators have underinvested in exploration in the recent past."