April 2000 Vol. 221 No. 4  Editorial

Thomas R. Wright, Jr.,  Editorial Director

Back to work!

Let’s see now, the spot price for West Texas Intermediate (WTI) crude surpassed $20 per bbl back in August of 1999. And it has stayed above $20 for some eight months. What’s more, it has exceeded $25 for almost four months (at press time).

But while crude prices have shown extraordinary firmness, the number of drilling rigs in operation around the world and in the U.S has grown . . . well, unremarkably. That’s puzzling because in 1997/1998, we often heard operators say that they were geared to making a profit with $16 – $18 oil; and if only oil would stay at $20, they could invest in long-term projects.

Now, we hear operators say that they don’t think OPEC can hold firm and keep oil above $20 for any length of time. Some companies, in fact, say they are positioning themselves to be profitable with oil as low as $12 – $15. We’ve also heard more than one service company interpret that comment as follows: "If oil should go to $15, we’ll still be able to make a profit off the backs of our suppliers."

Well, now’s probably a good time for industry to kick the pessimistic attitude on oil prices and start thinking about how the world is going to produce enough oil to fill the coming demand. For example, Simmons & Company International, of Houston, recently released a report that looks at OPEC’s current production capacity and addresses the question of whether the cartel can meet increasing world oil demand at the same time non-OPEC production stagnates. In its study, the firm concluded that, while it’s impossible to accurately measure, OPEC’s excess capacity is between 3 million and 4 million bpd, not the 7 million to 8 million bpd suggested by some analysts.

Then, after studying supply / demand forecasts, Simmons & Co. assumed that OPEC would increase production by 2.5 million bpd during 2000 ("in a series of measured, disciplined production increases"), resulting in an excess production capacity of about one million bpd at the start of 2001. After applying these scenarios to pricing, the firm sees the NYMEX price averaging $25 per bbl during 2000 and $22.50 per bbl in 2001. In its projections, Simmons & Co. anticipates a two-step production increase (one million bpd during second-quarter 2000, and an additional 1.5 million bpd late in the year in front of increasing winter demand).

Simmons & Co.’s David Pursell cautions that the price forecast could well be incorrect, as illustrated by oil price volatility during the past two years. However, there are two very important points regarding the forecast. First, the firm does not believe crude oil prices will revert to the mean price of $18 per bbl due to the anticipated high global supply capacity utilization. Second, there is considerable upside bias to the forecast, given the tight supply and demand fundamentals.

So, what does this all mean? It means that somebody had better get back to exploring and drilling – and fast. Otherwise, the industry will again be accused of raking in obscene profits while causing the public to suffer. Those representatives in Washington that we went whining to for help back in 1998/1999 are now going to be wondering why $30-oil isn’t causing more activity. And don’t be surprised when one of them digs up and dusts off Jimmy Carter’s windfall profits tax.

Hit me! Prior to Al Gore’s invention of the Internet and, subsequently, our going online with some of the content of World Oil each month, we had to rely on some old-fashioned surveys to determine what portions of the magazine received the most readership. And over the years, the editors have had some lively discussions and made at least a few wagers as to whose column would generate the best score. The problem was that these analyses took a long time to produce and only sampled a small portion of the readership.

These days, we can get a count of the number of folks (hits) who read a particular column (or any other article) just about any time we want. Unfortunately, we don’t always like the results; in fact, they can be downright humiliating.

For example, we recently did a study of how the content from a recent issue was read online. Of the approximately 18,000 hits on the main World Oil page, only a handful bothered to navigate to this page. Most of the visitors went astray looking for meeting notices, or archived articles, or studying statistics, etc.

Well, now is your chance to redeem yourself and, at the same time, check out the first phase of our new e-commerce website.

Take a few minutes and go to WorldOil.com to see how we’ve moved our Composite Catalog of Oilfield Equipment and Services online. In addition to this searchable version of the Composite Catalog, you’ll see expanded magazine content, an oil and gas information center with technical tables, industry news, an event calendar and industry directories.

In the next phase, planned for next month, buyers will be able to register and request quotes from the Composite Catalog. Then, by August, you should see full business-to-business e-commerce functionality, including product comparisons, product bidding, purchase order creation and procurement capabilities.

Just don’t forget to click through to the Editorial.

Until November. Although the two major U.S. political parties have all but selected their presidential candidates, both will still have to endure some sniping from all sides, particularly on the Internet, where we recently ran across a site called "The Complete Bushisms." It contains some slips George W. made during his many campaign speeches. One of our favorites is: "Will the highways on the Internet become more few?"

But this site also allowed comments to be posted, and we enjoyed this one from a Bush supporter who was describing Gore’s celebrated wooden mannerisms: "I suspect the reason Gore is such an environmentalist is the fear that someone may want to chop him down someday."