January 2000 Vol. 221 No. 1  Editorial

Thomas R. Wright, Jr.,  Editorial Director

Year looks good, if politicians stay clear

The fact that you are reading this shortly after the beginning of the New Year, would seem to indicate that we all were able to avoid major catastrophes from Y2K bug bites. And building upon that success, it is gratifying to be able to report even more good news as the New Year begins.

In addition to the fact that oil prices are more than double what they were a year ago, we are now starting to see some reaction by the producing companies. (Yes, it is about time.) The number of rigs active in the U.S. has risen 62% from its low point last spring, and another leading indicator is signaling even more activity. Salomon Smith Barney just released a study showing a dramatic upsurge in drilling permits all across the U.S. (see Drilling). If operators actually drill the wells they have permitted, then drilling could double in some regions, if (and that’s another very big if) the rigs and people are available.

Yet another good sign comes in a report from Arthur Andersen that shows oil companies are raising their drilling budgets. In Andersen’s survey of 89 energy companies, around 64% of the respondents say they will increase spending for U.S. oil and gas exploration in 2000. Development work will expand as well, with 67% planning increases. Outside U.S. activity isn’t quite as bullish, since only 29% see exploration expenditures rising and 30% anticipate higher development work.

It’s no surprise that most of the optimism comes from the independents (77% plan more spending) rather than the major companies (only 29% will see an increase). That’s probably because of the independents’ ability to react faster, and the majors’ need to hold onto the cash to offset lackluster performance from downstream operations.

In times of rising E&P activity, rigs and personnel availability always threaten to cap the expansion, however, the Andersen survey doesn’t indicate that this is a concern. Respondents forecast a median U.S. rig count of 800, which equates to current levels, and almost three-quarters of them see no shortage of either land or offshore rigs in the U.S. this year. More than half of those answering the survey expects industry employment to rise this year, and 38% already say they are experiencing a shortage of skilled personnel.

Now, the bad news. Historically, government bureaucrats have professed support of a free market for oil and gas. Trouble is, that support has been in only one direction – down. And U.S. Secretary of Energy Bill Richardson is proving that he’s no exception. Richardson last month said oil prices "are dangerously high" and that he would consider action to stabilize prices if they continue to climb. This amounts to a threat to sell oil from the U.S. Strategic Petroleum Reserve, which would lower prices and, in Richardson’s words, "protect the American consumer and the American economy." Incidentally, this is a reversal of the stance Richardson took in November when New York’s Senator Charles Schumer proposed selling oil from the SPR.

Predictably, Richardson’s statements drew strong response from producers. Ray Plank, Chairman of Apache Corp. said he "is out of line, out of order and should be fired." (Bravo, Raymond!) The president of the Independent Petroleum Association of America warned that the secretary’s actions could be devastating for the independent oil industry.

What disaster? While surfing the internet for background material on global warming, we recently ran across the following headline:

Armageddon in Antarctica
Obviously, this piqued our interest, and being a little paranoid, we decided to check whether the oil industry had committed another dastardly deed. However, we were relieved to learn that the subject "Armageddon" had to do with icebergs grounding on the seafloor and not some tanker spill.

But Damian Carrington, who writes / reports for BBC’s News Online, continued past the provocative headline as though he was describing some terrible man-made event for a Greenpeace rally. According to Damian’s account, "thriving Antarctic sea floor communities are utterly destroyed. Icebergs crashing against the sea floor could be the most devastating natural disaster that any living community on Earth experiences." Further, Damian says "over 99.5% of all visible seabed dwellers are massacred (by the way, the italics are ours) when the bergs collide with the ocean bottom. Floods, earthquakes and even meteorite impacts cannot claim such total destruction."

Even the project’s leader, Professor Lloyd Peck, got emotional, saying, "In biological terms it is outrageous – it’s almost a sterile environment. The bergs float in and gouge and trample the communities as they rock back and forth in the tide. The impact force is greater than that of cruise missiles – it’s immense."

Then, regaining his breath, Professor Peck describes his team’s underwater tests. They "used vacuum pumps to suck up the animals living on the sea bed both before and immediately after the berg impact." Now, isn’t that outrageous? Or, could sucking up animals be considered a massacre?

Although the scientists were "shocked by the totality of the death toll," they also tracked the recovery of the obliterated sites. While it had been thought this would take years, apparently the first arrivals re-colonized within a few days, simply by walking back in. Later the scientists concluded that "the berg impacts actually revitalize the sea floor communities in the same way that forest fires clear ‘dead wood’ and allow new trees to flourish." Says Professor Peck, "Icebergs actually help maintain the population with a larger number of young animals because (they are) clearing areas for settlement, so the ice bergs do have positive effects."

Oh well, Armageddon in the title did get our interest.

Copyright © 2000 World Oil
Copyright © 2000 Gulf Publishing Company