Special Focus

What's Ahead in 2006

Activity in many cases is at 20-year highs, as operators take advantage of high oil and gas prices to explore and develop a greater variety of properties. However, this wave of prosperity is straining service and supply capabilities.

Edited by Kurt S. Abraham, Managing/ International Editor

Most industry professionals would agree that 2005 has been a remarkable year in many ways for E&P operations. Continued oil and gas demand growth, high commodity prices, increased E&P activity and unexpected hurricane damage have all combined to keep things interesting for the upstream industry.

As of this writing (mid-November 2005), the International Energy Agency estimates that 2005’s global demand growth will be 1.26 million bopd, or 1.5%, up from 82.14 million bopd during 2004. IEA expects this year’s average oil demand to be 83.4 million bpd, to be followed by 85.2 million bpd in 2006. The agency also noted that Hurricanes Katrina and Rita had substantial short-term impact on September US oil product demand, lowering that figure by 2.3% from September 2004 levels. The increase of 1.75 million bopd forecast for 2006 is due largely to a rebound in US demand, as well as a recovery in Chinese demand.

Prices hit record-high levels earlier this year and have remained near those levels since then. After jumping above $60/bbl and then briefly flirting with $70/bbl in response to the hurricanes, the futures price for West Texas Intermediate has remained in a range between $55/bbl and the low $60s/bbl. Similarly, natural gas has gone well above $10/Mcf, with peaks near $14/Mcf. Given the continued outages of gas output in the Gulf of Mexico, the price as this article went to press remained above $12/Mcf, and there were concerns about sustainability of supply during the winter season in the US.

Upstream activity levels are sitting at 20-year highs in some cases, as operators take advantage of high prices to develop even the more marginal of properties. In the US, the number of drilling rigs running has exceeded 1,400 in recent months and is climbing toward 1,500. That figure is up about 20% over same-month levels in 2004, with utilization very close to 100%

High activity levels are straining service/ supply capabilities, and some E&P project costs have risen 20%, accordingly. Manpower concerns are also paramount, with shortages of trained crews appearing. For details and analysis on all these issues, we refer you to the following pages for the opinions of our editorial advisors.