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One of the more interesting news items
is from Indonesia. Indonesia has revised its forecast downward to
$14.50 / barrel for the year. The last forecast they produced was at $17.00.
Apparently,
The IEA, watchdog for the consuming nations has issued the following information:
Estimates of oil stocks showed an estimated reduction of 1 MMBPD in February erasing an increase of a similar amount in January. IRAQ produced 1.1 MMBPD in February for export, plans 1.5 MMbpd in March and another 1000,000 BPD April. The following is the beginning of a series on the historical relationship between prices and various segments of the energy industry: Impact of Prices on Industry Segments:Drilling and Exploration |
| Boom and Bust
The Rotary Rig Count is the average number of drilling rigs actively exploring for oil and gas. Drilling an oil or gas well is a capital investment in the expectation of returns from the production of crude oil or natural gas. Rig count is one of the primary measures of the health of the exploration segment of the oil and gas industry. In a very real sense it is a measure of the oil and gas industry's confidence in its own future. At the end of the Arab Oil Embargo in 1974 rig count was below 1500. It rose steadily with regulated crude oil prices to over 2000 in 1979. From 1978 to the beginning of 1981 domestic crude oil prices exploded from a combination of the the rapid growth in world energy prices and deregulation of domestic prices. Forecasts of crude oil prices in excess of $100 per barrel fueled a drilling frenzy. By 1982 the number of rotary rigs running had more than doubled. It is important to note that the peak in drilling occurred over a year after oil prices had entered a steep decline which continued until the 1986 price collapse. The one year lag between crude prices and rig count disappeared in the 1986 price collapse. For the next few years the towns in the oil patch were characterized by bankruptcy, bank failures and high unemployment. |
U.S. Rotary
Rig Count 1974-1997
Crude Oil and Natural Gas Drilling 
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| After the
Collapse
Several trends established were established in the wake of the collapse in crude prices. The lag of over a year for drilling to respond to crude prices is now reduced to a matter of months. (Note that the graph on the right is limited to rigs involved in exploration for crude oil as compared to the previous graph which also included rigs involved in gas exploration.) Like any other industry that goes through hard times the oil business emerged smarter and much leaner. Industry participants, bankers and investors were far more aware of the risk of price movements. Companies long familiar with accessing geologic risk added price risk to their decision criteria. Technological improvements were incorporated:
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U.S. Rotary
Rig Count
Exploration for Oil 
Click on graph for larger view U.S. Rotary Rig Count
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James L. Williams
WTRG Economics http://www.wtrg.com
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