Editorial Comment

Aug. 2002 Vol. 223 No. 8  Editorial Comment

Thomas R. Wright, Jr.,  Publisher

Outlook mixed for remainder of 2002. The special focus of this issue is the outlook for E&P activity for the rest of the year. As you will note from reading this report, there is good news and not-so-good news. In the good variety comes a report from Salomon Smith Barney that the worldwide rig count will be higher this year than the firm originally expected.

With activity driven by gas drilling in the U.S. and Canada, along with expectations for little change in drilling outside North America, Mark S. Urness and W. Michael McNair now expect the worldwide rig count to average 1,874. This is up from their prior forecast of 1,808, but down substantially from the 2,241 units operating during 2001. For 2003, they are forecasting 2,195 worldwide rigs, a gain of about 17% over 2002. Again, the increase will be driven primarily by increased natural gas drilling in the U.S.

The Salomon forecast for the U.S. this year is being increased to 860 from 810 rigs, primarily reflecting more drilling driven by gas prices that have been running above $3.00 per MMBtu. The U.S. natural gas rig count is expected to average 720 in 2002, up from the prior forecast of 670.

Despite very attractive oil prices, the report sees operators stubbornly continuing to focus on gas drilling. Thus, the number of rigs forecast to drill for oil remains unchanged at 140.

In Canada, Urness and McNair expect the rig count to average 284 this year, up slightly from their prior forecast of 268. Again, they believe stronger natural gas prices will drive the increased rig demand in the second half. This increased gas drilling is primarily due to incremental pipeline capacity and the use of gas as the fuel of choice for virtually all new power plants in North America. In 2003, the Canadian rig count is expected to climb by 36 units to 320 rigs.

Urness and McNair expect rig activity outside the U.S. to remain relatively flat in 2002 at their earlier forecast of 730. Despite oil prices above $25.00 per bbl, they believe major and national operators are hesitant to alter spending plans because of a belief that prices are being supported by tension in the Middle East and OPEC’s continued adherence to production cuts rather than by strong demand fundamentals

On a regional basis, Urness and McNair, increased their Middle Eastern forecast to 195 rigs from 190, and the Asia-Pacific forecast to 170 from 165. They are lowering their European and African forecasts to 100 and 55, respectively, from 105 and 60. The Latin American rig forecast will remain at 210. For 2003, they expect the international rig count to rise by 6%, to 775.

Congress gets sneaky – again. "New air quality legislation currently being considered in Congress is a stealth attempt to impose Kyoto Protocol-style energy rationing," according to a new study by the Competitive Enterprise Institute. Study author Marlo Lewis, Jr., exposes the flaws of the so-called "Multi-Pollutant" air pollution legislation, including the "dishonest attempt to link harmless carbon dioxide with true air pollutants such as sulfur dioxide and mercury."

Although President Bush has nixed any chance of the United States ratifying the Kyoto global warming treaty during his term of office, the Kyoto agenda of climate alarmism and energy rationing continues to shape the public debate, says Lewis, a senior fellow at CEI.

The air pollution bills currently sponsored by James Jeffords (I-VT) in the Senate (S. 556) and Henry Waxman (D-CA) in the House (H.R. 1256) are prime examples of this trend. (In case you’ve forgotten, Jeffords is the former Republican who "went Independent," and therefore is responsible for throwing control of the Senate to the Democrats.) Witnesses were to testify before the Senate Environment and Public Works Committee under the chairmanship of Sen. Jeffords to examine the multi-pollutant proposal.

To provide a clear understanding of the legislation, the committee will need to address several important flaws, including the tens of billions of dollars in higher energy prices it would cost consumers in the years ahead and its uselessness as a response to climate change. "The Energy Information Agency examined the impacts of Sen. Jeffords’ plan and found that it would increase electricity prices 33% by 2020," said Lewis. Additionally, the overall impact of the Jeffords plan would be to reduce GDP by $100 billion once it is fully phased-in. Given the lack of evidence that the proposals would do anything to actually influence the climate, that’s a cost the American people should not be asked to shoulder.

CEI describes itself as a "non-profit, non-partisan public policy group dedicated to the principles of free enterprise and limited government."

New math. The way math is taught seems to change every decade, and following is a recap of fifty years of progress. Incidentally, I vaguely remember the version shown for the 70s, despite the fact my experience would have been in the 60s. Maybe that’s why they called it "new math" back then – it hadn’t been adopted everywhere yet.

   Teaching Math in 1950 – A logger sells a truckload of lumber for $100. His cost of production is 4/5 of the price. What is his profit?

   Teaching Math in 1960 – A logger sells a truckload of lumber for $100. His cost of production is 4/5 of the price, or $80. What is his profit?

   Teaching Math in 1970 – A logger exchanges a Set L of lumber for a Set M of money. The cardinality of Set M is 100. Each element is worth one dollar. Make 100 dots representing the elements of the Set M. The Set C, the cost of production, contains 20 fewer points than Set M. Represent the Set C as a subset of Set M and answer the following question: What is the cardinality of the Set P of profits?

   Teaching Math in 1980 – A logger sells a truckload of lumber for $100. His cost of production is $80 and his profit is $20. Your assignment: Underline the number 20.

   Teaching Math in 1990 – By cutting down beautiful forest trees, the logger makes $20. What do you think of this way of making a living? Topic for class participation after answering the question: How did the forest birds and squirrels feel as the logger cut down the trees? There are no wrong answers.

   Teaching Math in 2000 – A logger sells a truckload of lumber for $100. His cost of production is $120. How does Arthur Andersen determine that his profit margin is $60?  

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