UBS Patchwork Survey: E&P firms' spending, drilling plans to accelerate
By OGJ editors
HOUSTON, June 14 -- Oil and natural gas companies' spending, drilling, workover, and seismic survey activities all are expected to accelerate within 60 days, said the monthly PatchWork Survey results released by UBS Securities LLC.
"Every activity index hit a record high this month, and all broke out of the very high levels that they have been at over the past few months," said UBS analyst James H. Stone.
UBS's survey uses an index ranging from -100 to 100. Positive numbers indicate that an increase in activity or pricing is expected in 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 in 60 days.
Spending plans
The spending index for June for the US and Canada stands at 54 and is trending upward again, Stone said. Both the level and the trend indicate future direction of activity, he said.
"Commodity prices remain very high, underpinning the ability and propensity to spend. Spot WTI (West Texas Intermediate) averaged over $40/bbl in May, some of which will likely find its way into service company pockets," he aid.
Stone also noted that his own company's forecast US rig count of 1,200 rigs working by yearend "is beginning to look conservative." Smaller operators appear to be accelerating their drilling after 4 months of reduced activity, the survey showed.
"The only fly in the ointment could be if larger operators scale back their second half spending, if budgets have been front-end loaded this year (similar to last year). While this is possible, first-quarter spending for 30 of the largest integrated E&P companies ran at exactly 25% of the expected total for the full year, and based on our estimates for the first half, spending should reach 50% of the full year total," Stone said.
He believes that continued improvements in cash flow and higher costs could prompt some oil and gas companies to increase budgets during the second half.
Drilling, workover plans
UBS's drilling index for June came in at 56 compared with 44 for May.
"Strong levels for the drilling index combined with strong permitting data indicate that at least land-based activity can continue to rise over the next 60 days. A reacceleration of the rig count looks more than likely over the coming 60 days," Stone said.
Meanwhile, the workover activity index reached 51 compared with 43 in May. Operators expect increased service costs and equipment prices.
"Operators' expectations regarding services and equipment prices hit a record high this month, with every subcategory hitting a new high, other than tubulars and seismic," Stone said. "Every index was above 50, except seismic. We expect margins to improve over the next coupe of quarters across most product lines."
Plans for seismic survey acquisition also showed improvement, reaching an index of 18 in June compared with 9 in May.