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Texas Drilling Associates -
6130 Inway Drive, Spring, Texas 77389 U.S.A.
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Imagineering by Mark S. Ramsey, P.E. 10,000 Meters Over the North Sea - December 2, 1996 Happy New Year! As I write, another new year is fast approaching. Though predictions are notoriously inaccurate, (and mine will likely be so as well), here's my read on the coming year. Oil and Gas Drilling Activity will be flat offshore, trending upwards on land. The drivers for offshore will be the ongoing rig shortage. More specifically, since utilization is near 100%, it can't get much busier! The driver for onshore will be the offshore. The overriding driver of both is that oil prices are above most company targets and will likely stay that way for the foreseeable future - barring of course anything weird by any government. How so? It's quite simple. Production, including the Middle East, is near capacity. Demand continues to grow by 2-4% per year, driven primarily not by the West but by developing countries and their respective growing populations. Couple this with the rig shortage and hence the inability to quickly bring on more production capacity, and voila, we have reasonable, stable and higher prices than in the past several years (except for the spike during the Persian Gulf war). Day Rates will continue to rocket upwards! Since they have already doubled recently, you are right to ask, "How so?" It is really quite simple. First, demand has been trickling upwards. Not without hesitation or retreating on occasion, but the trend is upward. Second, supply has been dwindling due to many facets of the second law of thermodynamics - entropy. We lose rigs from time to time as they wear out, sink, burn, are converted to FPS's, or whatever. Third, we are not building many replacements. Fourth, day rates are still not high enough to justify new builds! Quite simply, when these factors are combined, day rates (total spread is already around $10,000 US per hour in certain areas), must inevitably continue to trend upward if we are going to continue to drill offshore! Land rates will trend upward for similar reasons, though the full utilization that the offshore has recently seen has not hit land markets yet except for some relatively isolated/restricted access geographical areas. (In the interest of being fair, I admit that I bought some drilling contractor stock awhile ago and am delighted at its "performance" in the past few months. But, as the financial newsletter folks say, I'm explicitly making no recommendations here, past performance is no guarantee of future performance, etc., etc.) Personnel are in short supply and will be even more difficult to obtain, especially qualified, experienced people. Several service companies have embarked on MAJOR hiring programs of one thousand or more engineers recently. Even majors are hiring again and have recognized that the low-to-no raise policies of the past few years won't hack it anymore. It's quite simple. Companies that really want to hire good people are going to have to pay more for them this year. Winners and Losers are not always obvious. In general, those people, products, and services in short supply will "win" and those with old-or-no technology, not enough people, products or services already will "lose". Rig contractors and equipped and staffed service companies seem to be in the former category, while operators and poorly staffed service companies seem to be in the latter. If this scenario pans out, there could very well be a "positive feedback loop" effect that further depletes the "losers" and amplifies the "winners'" gains. In almost any variation of the above, training companies and departments will be very busy this year. In other areas: Melatonin will become the health food supplement of choice in the oil patch for overcoming jet lag. Volcanoes in South America, Antarctica, Hawaii, and Africa will make the newspapers. Significant research related to our own Mount Saint Helen will spark scientific debates. Earthquakes will strike Japan, Bosnia, Turkey, Israel and California. (John Travolta will not predict the one in California.) Baseball will be won by the New York Yankees. Corel/WordPerfect will make significant headway against Microsoft in the office software market. Microsoft will buy Corel/WordPerfect. American Football will again be dominated by the Green Bay Packers. In Basketball, the Houston Rockets or the San Antonio Spurs will win it all. Which one is too close to call at press time. In Soccer, Argentina will beat Italy 1-0, and then the fans will tear the stadium down! Since I don't yet understand Cricket, I'll defer on this one. (Does anyone understand it?) Melatonin will be shown to cause pre-cancerous growths in cigarette smoking lab mice. Netscape will fend off Microsoft Explorer as the browser of choice on the internet. Microsoft will buy Netscape. Foreign Policy: Clinton will have none. Domestic Affairs: Clinton will have several! Global warming will be called into question when the worst winter freeze in Florida's history destroys 80% of the orange crop. The worst winter in recent years will cause spot natural gas and heating oil shortages, prompting Congressional hearings on how the oil industry is behind the cold weather and high prices. Windfall profits taxes will be proposed. A new subsidy will be announced for the home-pageless to let them gobble up some of the precious bandwidth of the internet downloading graphic whatevers. (Next step, teach them to read, not just look at the pictures!) Global carbon taxes will gain in popularity, especially in groups that would collect them and in countries that think they would get them. A booming business in Carbon Dioxide credits (to offset the carbon tax) will start and turn into a commodity on the Chicago Board of Exchange. (Tree planters benefit from this one!) A 500 Mhz PC will be announced (but not delivered until 1998). It will be able to calculate your carbon tax. It will not be able to figure out your US income tax. The US DOE will close down once and for all. (It will reopen the next day as the Federal Agency for Carbon Tax Spending, FACTS.) Oil Prices will hit $31 per barrel. Analysts will be in denial and say it is a fluke related to the American air strike on Syria (did I mention this one yet?). Sharks, especially person-eating species, will be declared to be endangered. (Is this a problem?) Jet Lag will be shown to cause pre-cancerous growths in cigarette smoking lab mice. Melatonin will be declared subject to the world carbon tax. (Does it matter that this would not be logical?) Rotary Steerable Systems will be accepted and used. Oil Prices will hit $36 per barrel. A Congressional inquiry will be launched into the collusion of the oil industry in prompting the American air strike on Syria, which escalated, and took out half of Saudi Arabia's production. Windfall profits taxes are passed. The 10k departure for ERD wells will be achieved. 15k departures will be planned. A rocket will be launched from a converted semi-submersible drilling vessel named "2001, a Space Odyssey"...or something close to that! Microsoft and Intel will be listed on the NYSE under the symbols "M" and "I", after Microsoft buys M-I drilling fluids. Microsoft will buy Intel. Spread Rates will hit $15k per hour in some areas. Schlumberger will announce a Global Integrated Proprietary Processing System, (GIPPS). Microsoft will buy Schlumberger. China will annex Indonesia. (Who would stop them?) Microsoft will buy China. Hillary will be found to have profited from Melatonin Futures. Microsoft will not buy Hillary...professional ethics. Don't forget, these are likely less accurate than the supermarket tabloid claims of alien births. Enjoy at your own risk! Best wishes for the coming year! Very truly yours, Mark S. Ramsey, P.E. |
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