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Will Crude Oil and Natural Gas Companies See a Stronger 2010?
Currently, the state of the Oil & Gas Production Industry is one of paralysis. Plans for substantial capital spending are being delayed, placed on hold or cancelled. Drilling activity for both oil and natural gas is still at very low levels. During the past several years, rig counts were steadily increasing, but peaked at 2,031 rigs (416 oil and 1,606 natural gas) in September of 2008, according to Baker Hughes Rig Counts. Since then, the number of active rigs declined until late June. The last week of June brought a slight increase of 18 active rigs, bringing the total to 917 total rigs, the first increase since the third quarter of 2008. The last time rig counts were at levels this low was between 2001 and 2003, during the recession of the early 2000s. It is too early to tell whether this latest increase is a true turnaround or just an anomaly.
In terms of project spending, there is potentially a significant amount of money to be invested in 2010. Industrial Info is tracking 76 Oil & Gas Production Industry projects worth approximately $10.3 billion in the United States and Canada. At first glance, this gives the appearance that the industry is turning around, especially when compared to the $6 billion of planned investments in 2009. Unfortunately, at this point, nobody knows which or how many of the projects planned to kick off in 2010 will be deferred. Several projects scheduled to begin in 2009 have been pushed out to 2010 and possibly later, and only as 2009 winds down and 2010 approaches, will it become clearer which of these projects will actually come to fruition.
The major issues that hindered capital investments from the beginning of 2009 will continue to plague the Oil & Gas Production Industry for the remainder of the year and probably into 2010. In the first half of 2009, the major obstacle was obtaining financing because of tighter lending standards. Some companies will continue to feel the pinch, but the impact of the credit crunch is not expected to be as widespread.
Moving forward, commodity prices will have the most significant impact on capital spending. The wild fluctuations in crude prices are making it extremely difficult to estimate demand and forecast production schedules. On a historical basis, current crude oil prices are still extremely high. No real reason exists for prices to be as high as they currently are, especially with the current economic conditions and lower worldwide demand. At the opposite side of the spectrum natural gas prices are extremely low, which has completely decimated domestic drilling as well capital and even some maintenance spending at natural gas processing and fractionation plants.
Despite current conditions, energy companies still need to focus on long-term goals. The projects being delayed and placed on hold today will still be necessary in the future. When will these projects occur, and will they happen soon enough to readily meet tomorrow's energy needs?
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