Oil-price rise isn't aiding drilling firms

www.iht.com Ravil Shirodkar and Sri Jegarajah Bloomberg News Monday, January 13, 2003   NEW DELHI Schlumberger Ltd., the largest oil-services company in the world, and rivals said Sunday that they were seeing few gains from oil prices near two-year highs because the producers that hire them to find oil do not expect the rally to last.

A monthlong national strike in Venezuela and a possible U.S. war with Iraq helped oil prices rise 44 percent in London last year. That has failed to prompt Exxon Mobil Corp., Royal/Dutch Shell Group and other producers to bolster spending on survey work and drilling, contractors said.

"We're not seeing a significant increase in business because oil companies don't expect current prices to last," Satish Pai, a vice president at Schlumberger, said at a conference in New Delhi. "Prices are high because of the war premium and Venezuela. Both of those situations could quickly evaporate."

Lower-than-anticipated drilling activity may worsen the drop in earnings at oil-field services companies. Schlumberger's pretax profit from services fell 22 percent in the first three quarters of 2002. Precision Drilling Corp., the biggest Canadian oil-services company, said fourth-quarter income may drop 78 percent. Stolt Offshore of Britain cut its full-year forecast to a loss.

The Organization of Petroleum Exporting Countries was meeting Sunday in Vienna to discuss oil prices and was expected to agree to raise output temporarily to bring prices down.

Producers say the fluctuation in oil prices meant that decisions about long-term investment in exploration were not made just on the basis of current oil prices.

"This business is a cyclical business, and you don't spend a lot when the oil price is high, and you don't cut your costs too deep when the oil price is low," said David McManus, executive vice president of Asia operations at BG Group PLC of Britain, the third-largest natural gas producer.

There is typically a lag of as long as 18 months between a surge in oil prices and new business appearing for service companies, contractors said.

"It can take over a year before oil companies invest in a new rig," said Kazimierz Pietrzyk, the India country manager for Geofizyka Torun of Poland, which is mapping oil fields for Cairn Energy PLC and Reliance Industries Ltd. in India.

Reliance made a major discovery in 2002 off the east coast of India.

Cairn has found oil or gas in nine of 11 wells it dug in India in the past two years.

The French bank Societe Generale predicts that Brent oil in London will average $22 a barrel this year, dropping from an average of $25 a barrel in the first quarter to $21 a barrel in the third, according a report by Frederic Lasserre, head of commodities research at SG Economic Research. "You only have to look at the basic pricing assumptions of the major exploration and production companies to see that they plan for a lower sustained oil price" than $25 a barrel, McManus said at the conference.

Brent oil for February delivery rose Friday in London to $29.67 a barrel on the International Petroleum Exchange. Prices rose above $30 early this month, the highest in two years.

Energy companies will probably spend less on equipment in the United States in 2003 than last year, according to a survey made by Lehman Brothers Inc. last month.

Spending in the United States may fall 0.7 percent to $30.3 billion from $30.5 billion in 2002, the survey of 323 oil and gas companies found. Global investment may gain 4.2 percent to $132.4 billion, after a 1.2 percent drop in 2002. Lehman previously expected both U.S. and global spending to rise 7 percent in 2003.

Petrotech 2003, the biggest oil conference in India, ended Sunday. Indian field could reach 7 billion tons

Oil fields off the Indian east coast may hold as much as 7 billion tons of oil and gas, one-fourth of the country's untapped reserves, a government official said over the weekend.

About 3.5 billion tons of the reserves may be provable by drilling, said Avinash Chandra, director general for hydrocarbons at the oil ministry. Of that, about 500 million tons has already been proven from discoveries by Reliance Industries and Cairn Energy, he said at the conference in New Delhi.

Reliance, India's biggest non-state company, made the discovery in 2002 off India's east coast, the country's biggest find for three decades. Cairn has found oil or gas in nine of 11 wells it has dug in the past two years. India is trying to open up exploration to reduce the need to import fuel.

"The discoveries made by Reliance and Cairn on the east coast only underscore our view" of how much oil and gas is waiting to be found, said Chandra. "The proof of the pudding is in the eating."