Sunday, January 25, 2009

Downturn in US Oil Rigs

From the Oil and Gas Journal comes this report on the status of US drilling activities. US drilling activity is falling. An industry analyst quoted in the article:

On Jan. 22, the day before the Baker Hughes report, Paul Horsnell at Barclays Capital Inc. in London said, "The latest US rig counts seem to imply a sharp downturn in industry confidence and in the willingness to invest. US drilling activity has fallen by 99 rigs (23%) over the past 4 weeks alone and does appear set to move even lower. In our view, the impression given by the data of an industry which is pulling in its horns rapidly, and which is moving with haste to reexamine, scale-back, and postpone expenditure seems to be an accurate one."

The implications:

He said, "With the backdrop of a hail of recent announcements on capital expenditure reductions for both conventional and nonconventional oil, together with the continuing move away from investment in alternative energy, we believe that the sharp fall in industry confidence is likely to have a more lasting effect on the health of the supply-side."

Horsnell said, "It tends to be a far longer process to reinstate projects than it is to mothball or cancel them, and the scale of the current industry freeze and confidence loss seems likely to severely affect non-OPEC production. Further, given how much of expenditure in mature areas is directed at trying to contain decline rates, we suspect that those decline rates might now be set for another step up."

I noticed gasoline at the Touhy station was $1.99 today. Wonder how much longer before it ratchets up again.

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