Oil and natural gas producers are expected to spend 7% more on capital expenditures this year than in 2005, and the North American drilling rig count is at a 20 year high — up 19.4% since July 2005. With all of that money and scarce conventional resources, U.S. producers have shifted their exploration strategies to the “evolving opportunities” onshore and finding success across the continent, energy analysts said Monday.
Speaking on the opening day of EnerCom’s 11th Oil & Gas Conference in Denver, Petrie Parkman & Co. Inc. CEO Tom Petrie said he agreed with many of his peers that conventional oil and gas resources in North America are dwindling. But he quickly rattled off a list of unconventional resources now beginning to make a difference in the marketplace.
“Oil and gas shales, tight gas formations, the deepwater Gulf of Mexico, the Alaskan basins, Canadian sources, West and East Coast offshore basins…there are indigenous resources,” Petrie said. “And people like Aubrey McClendon [Chesapeake Energy CEO] are finding them. They are pursuing anything of merit. The shale category is very instructive of what we’re going to. The tight gas formations in the Rockies…they’re a significant resource potential. The remaining potential of the deepwater Gulf is good, but as we saw last year, it has vulnerabilities too.”
The new energy resources are there, but without more pipes, processors and refineries, growth could be stymied. “Major new infrastructure build-out is critical,” Petrie said, whether to accommodate the new shale plays across North America, North Slope gas, Mackenzie Delta gas or imported liquefied natural gas. “The companies at this conference have to ask the critical questions on how to buy time to get these things done. Those are what the big challenges are.”
While it is important for the majors and large independents to pursue oil and gas globally, Petrie said geopolitical strife and “regime changes” require producers to look for energy in North America. “We probably need a parallel pursuit to the unconventional categories.”
Price-wise, Petrie is forecasting oil prices through 2010 to move to around $50/bbl; natural gas between now and 2010 is expected to average around $7/Mcf (Henry Hub).
Natexis Bleichroeder Inc. analyst Roger Read, who offered his take on prices and gas storage, said, “perdition seems less likely than it did just a few weeks ago. Paradise requires us to have continued favorable weather, including this winter. Wouldn’t it be nice to have a ‘normal’ winter for a change?”
Natexis is forecasting gas prices will be higher going forward, averaging around $6.50/MMBtu in 2006, and averaging $7 in 2007. “The $6.50 could prove to be a little bit low, and I’m betting that $7 is a little too conservative. We expect further drilling and maybe a plateau this fall. An early start to winter would be a big help on that front.”
Read noted that the “hot July helped” storage numbers. “Year-to-date the 2006 injection season has been 17% warmer than normal, and July was 5% warmer than July 2005. said there still could be hurricane trouble ahead. Most of the intense North American hurricanes don’t occur until late August through early October, with the most damaging historically occurring around Sept. 10.
“We have a three in 10 chance of having a storm now,” said Read. “A month from now, we have a nearly 100% chance of having a named storm. I’m not a weatherman. I play the trends. But there’s a pretty strong percentage that we’ll have a hurricane in September.”
“LNG imports are proving to be fairly sensitive to prices,” said Read. “But the story there is very much in the future and not the present. The trains are taking longer to build, the regas facilities are taking longer.”
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