HOUSTON, Oct. 19 -- Despite present uncertainties, oil and natural gas operations should rebound with higher commodity prices and increased drilling activity in early 2002, said a panel of corporate executives Friday at a Houston industry forum.
Basic fundamentals of short supplies and growing demand will push oil prices near $30/bbl by the end of this year and boost North American natural gas prices back to the $4/Mcf level as cheaper wholesale prices for electricity increases public consumption, said Henry Groppe, founder and partner of Groppe, Long & Littell, a Houston-based market analysis and forecasting firm with a reputation for predicting major price changes.
Even without any major supply disruptions, Groppe said, "We're moving into a new era of tight supplies and higher prices, following 14-15 years of very low prices for both oil and North American natural gas."
He said, "We have run out of $1.50-$2/Mcf gas and $15-$20/bbl oil. When that happens to a commodity, you have to have significant increases in prices to bring things back in balance."
Raoul Restucci, the new president and CEO of Shell Exploration & Production Co., Houston, is "much more bearish" about energy prices in the near term. "But I'm not really concerned," he said. "We're going to spend. We're going to keep our activity programs. We're bullish about our opportunities."
He said, "In the next quarter, the next 6 months, the next year, we're probably going to see some pretty weak gas prices. But we're still very bullish beyond that -- 2005, 2010, we're pretty bullish about gas opportunities in terms of costs and prices."
Charles D. Davidson, chairman, president, and CEO of Noble Affiliates Inc., Houston, said he's "not too excited" about possible radical changes in the industry.
"It's important for my company to maintain a balanced investment program and not overreact to what could be some very high market volatility," he said. "We're avoiding projects that accelerate gas production into what could be potentially a soft market for the next couple of months."
Still, Davidson said, "It's a good time to drill. We're seeing costs come down, and that's the time to be drilling some of these opportunities."
US drilling activity has recently plummeted in the gas-prone Gulf of Mexico. However, Robert Rose, chairman, president, and CEO of Global Marine Inc., predicted, "We'll start seeing things take off next year. The fourth quarter of this year will be the nadir."
Global is in the process of merging with Santa Fe International Corp. to become the second biggest marine drilling contractor in terms of fleet size.
Clayton Williams, chairman and president of Clayton Williams Energy Inc., Midland, Tex., said his company already is "in a period of more activity in recent months." He said his independent operation does better when commodity prices and drilling costs are lower than during the drilling booms sparked by high prices.
The sharp drop in world oil prices since Sept. 11 is "an overreaction to the view that a soft economy is going to cause a significant decline in oil usage. Historically, it's just the reverse of that -- the only time we have a significant decline in oil usage is when we have big increases in oil prices," said Groppe.
"Actually, we're short of world oil today," he said. "If we get the normal increase of oil consumption in winter months, the Organization of Petroleum Exporting Countries will have to increase production to keep prices from going off the top of their scale. We're forecasting oil prices approaching $30/bbl by the end of the year, as a result."
World oil production levels have been maintained in recent years largely "by more rapidly exploiting what we already had" through improved technology. Despite accelerated drilling, Groppe said, "The search for major new world oil supplies and major new North American gas supplies has been very disappointing."
Four of the five largest non-OPEC oil producers have surpassed their peak output, Groppe said.
US production from the Lower 48 states has declined 50% since from its 1970 peak. Each of the other non-OPEC producers (the North Sea, China, Mexico) is following that same pattern," said Groppe. "Canada is the exception because of their heavy oil and tar sands with continued opportunity for long, slow, continuous increases in production."
Within OPEC, he said, only the key Persian Gulf producers still have the capacity to ramp up oil output.
That's particularly true for Iraq, which has "done nothing in last 10-11 years to increase production," said Groppe, "Iraq, we think, will be the swing producer."
As for US natural gas, he said, 1967 "was the last year we replaced production on a straight-up reserves addition basis. What we've been doing ever since to a great extent is living off our bank account (of existing gas reserves)."
Canada effectively has carried the US gas market for the last 8-10 years, Groppe said. "If it hadn't have been for their willingness and ability to almost quadruple their exports, we would have had a severe gas crisis," he said. "And now they're in the same position we're in -- they've got a reserve life index of about 9 years, producing and selling everything they can every day."
Restucci disagreed with Groppe on OPEC's ability to increase oil production. Also, he said, "The former Soviet Union and Russia are coming on really strong (with added production)."
The five executives addressed the 14th biannual oil field breakfast forum sponsored by Resource Marketing International and Randal Morton International Inc., both of Houston.
Contact Sam Fletcher at [email protected]