International Outlook:
World Trends

Prices boost global numbers

The global E&P market remains highly unpredictable, albeit very profitable in the current price and demand environment. By all indications, the world economy has recovered significantly from the prolonged weak period that followed the events of 9/11/2001.

This recovery is reflected in very strong demand growth for crude oil and natural gas. To meet last year's increased demand, global oil output grew an unusually robust 3.9%, to 69.6 million bpd. Accordingly, world oil and gas reserves also increased. All these factors are good news for operators, who stand to realize impressive revenue on existing output.

West Texas Intermediate prices came down modestly from the high levels (above $40/bbl) of April and May, but they showed remarkable resiliency throughout June and July, holding firm in the mid-to-upper $30s. During the first half of August, WTI climbed back to a 10-week high, setting new records on the New York Mercantile Exchange by exceeding $46/bbl.

Although global drilling has not increased at a rate commensurate with prices by historical standards, the outlook for second-half 2004 and early 2005 remains buoyant. Drilling outside the US should total 46,231 wells, up 4.9%. We expect every region to achieve drilling increases, although the prosperity will not be evenly distributed.

In North America, Canada could conceivably set yet another yearly drilling record. Optimism abounds, with Canada's oil patch in the middle of a boom that has lasted for more than 18 months. Financial results have been outstanding, and drilling has continued at near-record levels. As always, there are concerns about sustainability of price levels, the amount of conventional oil and gas remaining, or how the left-leaning coalition government may impact business. The country will again approach a record level, drilling more than 20,500 wells.

In Mexico, wells drilled increased for the third straight year, to 593 (49 offshore). The official forecast for 2004 is 1,018 wells, 157 of them for exploration. Gas wells comprised two-thirds of last year's total, while the number of oil wells completed jumped to 124 from 28 the previous year. Offshore wells grew two-fold. In addition, oil production grew 6% in 2003. Last year marked the end of a five-year, steady descent in Mexico's natural gas output. Growth was around 1.8%.

Thanks to gains in Venezuela, Brazil and Trinidad, South America is on the rebound. Now that Venezuelan President Hugo Chavez has survived a recall election, foreign operators must resign themselves to dealing with the moody leader for two more years. Meanwhile, state firm PDVSA is slowly building back its capabilities, and drilling will gain accordingly. In Brazil, development projects offshore will keep the drilling rate high. Trinidad continues to expand exploitation of its gas resources. Overall, South American drilling will rise 8%.

Western Europe is the most depressed region. Despite initiatives (revamped licensing) by the UK Dept. of Trade & Industry to bring new operators into the British North Sea, activity remains level, at best. DTI's efforts are offset by a lack of large prospects, plus the 10% tax surcharge slapped on output two years ago. Norway is also treading water, as a debate about environmental practices, tax rates and access to prospects ensues between operators and the government. Small gains in Germany, Italy and France will keep the region level at 586 wells.

In the Former Soviet Union, Russia is quietly rebuilding its production and reserves. The country's oil output grew 11% last year, and reserves were up an estimated 1%. According to Russian and IEA numbers, Russia's output was less than 100,000 bopd behind world leader Saudi Arabia. Rehabilitation of existing fields continues, pushing drilling 2% higher. In the rest of the FSU, wells will be up 1%. Kazakhstan is the leading driller among FSU nations, with about 500 wells annually. Advanced development work continues at Tengiz and Karachaganak fields within the country.

Africa is enjoying another banner year (up 14%). Numerous developments offshore Angola and Egypt will keep their drilling rates high, while work remains steady in Libya and Nigeria. Sudan is now a major onshore player, set to achieve the second-highest drilling total. The only sour notes to be sounded among the larger producers will be minor drilling declines in Algeria and Gabon.

The never-ending string of annual Middle Eastern drilling increases remains unbroken, and a 5% gain is forecast. Saudi Arabia would like to contract another half-dozen or more rigs, but officials are having problems locating spare units. The extra rigs would satisfy Saudi's latest crude expansion effort, plus foreign operators' gas development plans. Oman remains the leading driller. Yemen will register one of its largest well totals ever, due primarily to an expansion of activity by the leading operator, Nexen.

In the Far East, a 4.3% gain is expected, as China pushes drilling to maximum utilization. Chinese engineers once again achieved a miracle increase in oil production, gaining about 1%, at 3.13 million bopd. Offshore Malaysia, appraisal and development of recent finds will push drilling 34% higher.

After a couple of lackluster years, the South Pacific has come roaring back, assuming that numbers from Australian officials, federal and state, prove accurate. Much of Australia's 56% gain will be supplied by Santos, which has a major onshore expansion underway. New Zealand drilling will rebound, as operators show renewed interest in exploration. 

	Estimated proven world reserves, 2003 versus 2002
	Forecast of 2004 world drilling – comparisons with 2003 and 2002
	World crude/ condensate production and wells actually producing – 2003 versus 2002