Special Focus

What's Ahead in 2005

High oil and gas prices have fattened oil companies' bank accounts in a demand-driven market. However, prosperity brings its own set of challenges, as the E&P industry leans ever harder on technology to yield new energy supplies.

Edited by Kurt S. Abraham, Managing/International Editor

Statisticians will mark down 2004 as a milestone year for oil and gas. It will be a year known for record-high oil demand, as China and the US compete for incremental supplies. This year has also seen real oil prices not only top $40/bbl consistently, but also rise above $50/bbl for the first time.

High prices have flooded oil company coffers with cash, particularly US majors. Yet, this bonanza has not always translated into higher spending. Operator investment has failed to increase with oil and gas prices at a ratio consistent with historical standards. Some of this is due to firms waiting on the outcome of the US presidential election. Additional shortfall can be traced to some oil company executives greedily boosting share prices.

Nevertheless, activity has grown incrementally, particularly in North America, where the search for more gas continues. The Middle East has prospered, as virtually all mothballed production, even in Saudi Arabia, has been brought online to rein in prices. Even the North Sea countries have begun to see a turnaround, thanks to high prices. The UK is also benefiting from a proactive governmental licensing program.

How this year's activity and trends will proceed into 2005 is difficult to predict, although some uncertainty has been removed by the re-election of US President George Bush. The second Bush administration, bolstered by stronger Republican Party majorities in Congress, is likely to make energy an early priority, particularly a fresh push to open the Arctic National Wildlife Refuge to exploration.

There is also little doubt that absent a cooling of the global economy, demand will again spawn strong competition for oil supplies. In addition, the inability to add substantially to North American gas reserves will propel various LNG projects forward. Greater interest will be shown in financing efforts to develop stranded gas in several international regions.

Underpinning these efforts will be even stronger reliance on new technology to get the job done. Lurking under the radar will be growing concerns about manpower and professional talent. For details on all these issues, we refer you to the following pages for the opinions of our editorial advisors.