MAKING MONEY SO FAST THEY CAN’T COUNT IT

Oil prices bloat service company profits
Doris Leblond, October 20, 2006 (Oil and Gas Journal)
- The global oil service and equipment (OS&E) industry is continuing to surf on the wave of high oil prices that are expected to push up 2006 exploration and production expenditures by 21% to $266.9 billion…The irruption of new players attracted by high oil prices—national oil companies, Indian firms, and small independent companies— however, is making it difficult to reliably assess investments…

- [H]alf of the upstream investments do not translate into higher E&P expenditure but are absorbed by the higher cost of services and equipment due to high raw material prices and the shortage of trained personnel and available onshore and offshore drilling rigs. Also, overflowing order books are lifting prices.
- [W]orld oil production likely would increase to 98 million b/d by 2010 compared with International Energy Agency's estimate of demand at 92.5 million b/d…
- E&P investments are made primarily in areas where there are no barriers to entry. This is why the share of both North America and the North Sea in world E&P investments increased to 48% in 2006 from 45% in 2005, reaching $90 billion in North America and $36.7 billion in the North Sea…In Latin America, 2006 investments should increase by 21% over 2005 to reach $35 billion. In Russia they should grow at the same world rate to meet the government's production target exceeding 10 million b/d. Investments in China, at 22%, are slightly below world average growth…

- 2007 investments [growth]…will hover between 20% and 25% to $320-335 billion—almost twice as much as in 2004—with tensions on the service and equipment industry likely persisting until 2008…
- All sectors of the OS&E industry are benefiting from the investment flurry…Seismic work has been on a growing trend…All indicators for drilling this year are strong…The utilization rate for offshore drilling rigs also kept climbing this year…