TonyM
02-14-2007, 09:49 PM
Sounds like the oil services might be in for a downturn;
=DJ Energy Indus Points To 2009 As Potential Inflection Point
By John M. Biers
Of DOW JONES NEWSWIRES
HOUSTON (Dow Jones)--An executive at Saudi Arabia's state oil company Wednesday affirmed the company's aggressive investment program through 2009, but said it was unclear whether the global oil powerhouse would maintain the campaign beyond that point.
A Royal Dutch Shell PLC (RDSA) executive complained that the high supply costs that have delayed some projects would remain lofty through 2009, but ease up thereafter. After taking advantage of limited deepwater rig capacity to drive up prices, Transocean Inc. (RIG) said it is encountering resistance from oil companies to sign 2009 contracts out of the expectation of a more operator-favorable market.
As the energy industry converges on Houston this week for a major industry gathering, there is a striking commonality as far as the time-frame when industry leaders project a potential change from the lofty operating environment of recent years. In many cases, that date is 2009.
"Cycles of investment don't happen overnight, but over four or five years, you definitely see cycles," said Cambridge Energy Research Associates Chairman Daniel Yergin. "The energy industry has longer cycles than other businesses, but there are still cycles."
The 2009 date offers a "reasonable" time-table for the energy industry's response to the energy crunch of recent years to play out, said Yergin, whose oil consulting firm expects crude prices to trend downward somewhat in the next couple of years from today's $60-range, hitting the high-$40-range by the end of the decade.
This week's proceedings in Houston have made clear that the industry is fairly confident the bullish market of the last few years will persist for a couple more years, due to supply-demand dynamics that are fairly tight and anxiety over geopolitical problems that has no reason to abate. There has been no talk of a price crash beyond 2009.
Yergin said prices could still be high in 2009 because of geopolitical factors. But the actual supply-demand dynamic will "look very different," he said.
There are many reasons behind the bullish oil market of recent years, including instability in the Middle East, unprecedented demand growth in Asia and a wave of unprecedented Gulf Coast hurricanes. Lending further support has been high natural gas prices due to the declining nature of the North American asset base
Saudi Arabia Embodies Conundrum
On one level though, a big factor in sustaining both oil and natural gas prices in recent years is simple: Tight supply.
Faced with a declining generation of "legacy" assets, major international oil companies like Exxon Mobil Corp. (XOM) and Shell have sharply increased capital budgets in recent years amid the multi-year commodity price surge.
No company has embodied this conundrum so much as Saudi Arabia Oil Co. (SOI.YY), or Saudi Aramco. The unofficial head of the Organization of Petroleum Exporting Countries has in recent years unveiled a massive, multi-billion dollar investment program to lift production capacity from 11 million barrels per day to 12.5 million in 2009, a surge enabled by an unprecedented buildup of drilling rigs, rented from Nabors Industries Ltd. (NBR) and other drillers. Officials from the kingdom have repeatedly pointed to the investment program, especially during price spikes of recent years when spare capacity has dropped to almost nothing.
Saudi officials have affirmed the buildup through 2009, and a top Saudi Aramco official did so again Wednesday at the CERA conference. But the Aramco official, Nansen Saleri, also said the company's plans weren't certain beyond 2009.
"Beyond that, it's a bit unclear," said Saleri, Aramco's manager of reservoir management.
An Aramco graphic distributed with his talk contained three potential scenarios, two of which depicted the company raising capacity above the level that would take overall Saudi production to 13-14 million barrels per day in 2016. The third scenario has Saudi production capacity leveling off at 12.5 million barrels per day through at least 2017. Saleri said the decision would depend on market conditions.
The overall outlook for the industry is very different from that of the last few years, when demand concerns drove the markets, said Chevron Corp. (CVX) Chief Economist Edgard Habib. He pointed to a "non-OPEC supply bulge" between now and 2010 and the growth of OPEC spare capacity. "We're back in a supply management," Habib said.
Rising operational costs have been a complicating factor in the bullish energy market of recent years, affecting everything from drilling rigs to steel to qualified personnel. A report released by CERA this week said the costs of major oil and gas production projects have risen more than 53% in the last two years and that "there is no slowing in sight." These costs have delayed some major projects.
Eye On Manpower Shortages
Most energy experts continue to point to a looming personnel crunch with the graying of the oil industry workforce. The problem is that far fewer people entered the energy industry after the mid-1980s oil bust.
But there are signs of an ebbing in some of the other obstacles now affecting some projects, said Nigel Wright, functional head of project cost and planning with Shell Global Solutions International BV.
Wright said he agreed that the manpower shortage could cause production problems in the future. But equipment shortages and the rising costs associated with the lack of resources are more fleeting.
"Projects okayed in 2005 and 2006 are enough to keep costs up through 2009," but the industry should see some moderation after that, he said.
And drilling costs are widely expected to fall with the arrival of hundreds of new land and offshore rigs. Offshore drillers have seen some of the strongest growth in pricing within the service industry in recent years, as deepwater exploration has taken off. But with new rigs expected to be rolled out starting in 2008, industry analysts widely expect costs to moderate after this year.
Transocean Chief Executive Bob Long told analysts that oil companies are resisting signing 2009 contracts, but expressed confidence the market would stay strong.
"Operators have been resisting rates they've been having to pay for a long time," Long said. "We're still convinced this market is going to be extremely strong, and in most cases we'll continue to try and get higher rates."
-By John Biers, Dow Jones Newswires; 713 547 9214; john.biers@dowjones.com
(Brian Baskin and Matthew Dalton contributed to this article.)
(END) Dow Jones Newswires
February 14, 2007 20:36 ET (01:36 GMT)
=DJ Energy Indus Points To 2009 As Potential Inflection Point
By John M. Biers
Of DOW JONES NEWSWIRES
HOUSTON (Dow Jones)--An executive at Saudi Arabia's state oil company Wednesday affirmed the company's aggressive investment program through 2009, but said it was unclear whether the global oil powerhouse would maintain the campaign beyond that point.
A Royal Dutch Shell PLC (RDSA) executive complained that the high supply costs that have delayed some projects would remain lofty through 2009, but ease up thereafter. After taking advantage of limited deepwater rig capacity to drive up prices, Transocean Inc. (RIG) said it is encountering resistance from oil companies to sign 2009 contracts out of the expectation of a more operator-favorable market.
As the energy industry converges on Houston this week for a major industry gathering, there is a striking commonality as far as the time-frame when industry leaders project a potential change from the lofty operating environment of recent years. In many cases, that date is 2009.
"Cycles of investment don't happen overnight, but over four or five years, you definitely see cycles," said Cambridge Energy Research Associates Chairman Daniel Yergin. "The energy industry has longer cycles than other businesses, but there are still cycles."
The 2009 date offers a "reasonable" time-table for the energy industry's response to the energy crunch of recent years to play out, said Yergin, whose oil consulting firm expects crude prices to trend downward somewhat in the next couple of years from today's $60-range, hitting the high-$40-range by the end of the decade.
This week's proceedings in Houston have made clear that the industry is fairly confident the bullish market of the last few years will persist for a couple more years, due to supply-demand dynamics that are fairly tight and anxiety over geopolitical problems that has no reason to abate. There has been no talk of a price crash beyond 2009.
Yergin said prices could still be high in 2009 because of geopolitical factors. But the actual supply-demand dynamic will "look very different," he said.
There are many reasons behind the bullish oil market of recent years, including instability in the Middle East, unprecedented demand growth in Asia and a wave of unprecedented Gulf Coast hurricanes. Lending further support has been high natural gas prices due to the declining nature of the North American asset base
Saudi Arabia Embodies Conundrum
On one level though, a big factor in sustaining both oil and natural gas prices in recent years is simple: Tight supply.
Faced with a declining generation of "legacy" assets, major international oil companies like Exxon Mobil Corp. (XOM) and Shell have sharply increased capital budgets in recent years amid the multi-year commodity price surge.
No company has embodied this conundrum so much as Saudi Arabia Oil Co. (SOI.YY), or Saudi Aramco. The unofficial head of the Organization of Petroleum Exporting Countries has in recent years unveiled a massive, multi-billion dollar investment program to lift production capacity from 11 million barrels per day to 12.5 million in 2009, a surge enabled by an unprecedented buildup of drilling rigs, rented from Nabors Industries Ltd. (NBR) and other drillers. Officials from the kingdom have repeatedly pointed to the investment program, especially during price spikes of recent years when spare capacity has dropped to almost nothing.
Saudi officials have affirmed the buildup through 2009, and a top Saudi Aramco official did so again Wednesday at the CERA conference. But the Aramco official, Nansen Saleri, also said the company's plans weren't certain beyond 2009.
"Beyond that, it's a bit unclear," said Saleri, Aramco's manager of reservoir management.
An Aramco graphic distributed with his talk contained three potential scenarios, two of which depicted the company raising capacity above the level that would take overall Saudi production to 13-14 million barrels per day in 2016. The third scenario has Saudi production capacity leveling off at 12.5 million barrels per day through at least 2017. Saleri said the decision would depend on market conditions.
The overall outlook for the industry is very different from that of the last few years, when demand concerns drove the markets, said Chevron Corp. (CVX) Chief Economist Edgard Habib. He pointed to a "non-OPEC supply bulge" between now and 2010 and the growth of OPEC spare capacity. "We're back in a supply management," Habib said.
Rising operational costs have been a complicating factor in the bullish energy market of recent years, affecting everything from drilling rigs to steel to qualified personnel. A report released by CERA this week said the costs of major oil and gas production projects have risen more than 53% in the last two years and that "there is no slowing in sight." These costs have delayed some major projects.
Eye On Manpower Shortages
Most energy experts continue to point to a looming personnel crunch with the graying of the oil industry workforce. The problem is that far fewer people entered the energy industry after the mid-1980s oil bust.
But there are signs of an ebbing in some of the other obstacles now affecting some projects, said Nigel Wright, functional head of project cost and planning with Shell Global Solutions International BV.
Wright said he agreed that the manpower shortage could cause production problems in the future. But equipment shortages and the rising costs associated with the lack of resources are more fleeting.
"Projects okayed in 2005 and 2006 are enough to keep costs up through 2009," but the industry should see some moderation after that, he said.
And drilling costs are widely expected to fall with the arrival of hundreds of new land and offshore rigs. Offshore drillers have seen some of the strongest growth in pricing within the service industry in recent years, as deepwater exploration has taken off. But with new rigs expected to be rolled out starting in 2008, industry analysts widely expect costs to moderate after this year.
Transocean Chief Executive Bob Long told analysts that oil companies are resisting signing 2009 contracts, but expressed confidence the market would stay strong.
"Operators have been resisting rates they've been having to pay for a long time," Long said. "We're still convinced this market is going to be extremely strong, and in most cases we'll continue to try and get higher rates."
-By John Biers, Dow Jones Newswires; 713 547 9214; john.biers@dowjones.com
(Brian Baskin and Matthew Dalton contributed to this article.)
(END) Dow Jones Newswires
February 14, 2007 20:36 ET (01:36 GMT)