ChangeWave Research: Natural Gas & Oil
ChangeWave Research Report:
Natural Gas & Oil Survey
Capital Budgets Rise; Demand Increases for Drilling Personnel and Services – But Shortages Hurting Industry
Overview
Energy prices have hit record highs this summer, but analysts have differing views on where things are headed for 2006. To find out, between August 9–15, 2005, we surveyed Alliance members who work in or are knowledgeable about the Natural Gas & Oil sector. A total of 82 members participated – including 57 who work directly in the industry.
Bottom Line: The survey results point to continuing strong growth for the Natural Gas & Oil sector, with capital budgets on the rise and continued high investment in both production and exploration – though not quite as high as we found in our 2004 survey.
Importantly, respondents cited shortages in drilling personnel/services and professional personnel – and believe such shortages are causing a decrease in industry production and exploration. Moreover, one-in-four respondents on the production side admit their companies won’t be able to spend their entire approved capital budget, primarily because of these shortages.
Price assumptions for both natural gas and oil have increased substantially since our Nov. 2004 survey, a clear indication companies believe higher prices are here to stay.
(A) Overall Industry Trends
· Capital Budgets Rising. More than three-quarters (77%) of respondents working in the natural gas and oil industry say their company’s overall capital budget will increase in 2006 compared to 2005. Note that in our Nov. 2004 survey, 73% of respondents said their overall capital budget was increasing.
· Deeper Wells for 2006. By a 68% to 0% margin, industry respondents say they believe companies will be drilling deeper wells in 2006 than they did in 2005.
· Strong Demand for Horizontal Drilling. Horizontal/Directional Drilling (43%) was cited as the advanced recovery technique in highest demand during the next year.
· Shortages in Personnel and Services. Respondents report that the biggest industry shortages currently lie in Drilling Personnel (Net Difference Score = -42), Drilling Services (-40) and Professional Personnel (Geologists, Geophysicists; -38).
· Lack of Availability Affecting Production/Exploration. Three-in-five respondents say the lack of availability of industry resources (e.g., drilling services and personnel) is causing a decrease in overall industry production and exploration.
(B) Production and Exploration
· 2006 Production Investment. More than 70% of respondent companies engaged in onshore production say they will invest more in 2006 compared to 2005 – however this is down from 88% in Nov. 2004. Among respondent companies engaged in offshore production, 69% say there will be more investment in 2006 compared to 2005 – also down from our previous survey.
· Unspent Capital Budgets. While 52% of respondents whose companies are engaged in production say they’ll spend their entire approved capital budget for the next 12 months, another 24% say their company won’t be able to spend their entire approved capital budget because of service, personnel and equipment shortages.
· 2006 Exploration Investment. Among companies engaged in onshore exploration, 68% of respondents say they’ll invest more in exploration in 2006 than in 2005, similar to our previous survey. Among companies engaged in offshore exploration, 72% say their will be more investment in 2006 compared to 2005, the same as previously.
(C) Natural Gas and Oil Prices
· Natural Gas Price Assumptions for 2006 and 2007. A total of 39% of industry respondents say their company’s price assumption for natural gas in 2006 is more than $6.00 – double the percentage in our previous survey. Only 22% say it will be less than $6.00 – down from 33% in November 2004. A similar trend exists for price assumptions for 2007.
· Light Sweet Crude Oil Price Assumptions for 2006 and 2007. A total of 43% say their company’s price assumption for oil is greater than $40 – double the percentage in our previous survey. Only 22% say their company’s 2006 price assumption for oil is less than $40 – down from 48% in November 2004. Similar trends exist for 2007.
Summary of Key Findings
The ChangeWave Alliance is a group of 5,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.
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www.ChangeWaveResearch.com
Table of Contents
Summary of Key Findings 2
The Findings 4
(A) Overall Industry Trends 4
(B) Production 8
(C) Exploration 11
(D) Natural Gas and Oil Prices 12
(E) Other Trends 14
ChangeWave Research Methodology 18
About ChangeWave Research 19
I. The Findings
Introduction
During the week of August 9 – 15, 2005, we surveyed Alliance members who work in or are knowledgeable about the Natural Gas & Oil sector. A total of 82 members participated – including 57 who work directly in the Natural Gas & Oil Industry.
(A) Overall Industry Trends
(1) Question Asked: With regard to your own company's overall Capital Budget - do you think you'll see an increase in your overall Capital Budget, a decrease, or will your overall Capital Budget remain the same for 2006 vs. 2005?* (n=57)
Current Survey Aug ‘05 / Previous Survey Nov ‘04Increase in 2006 Capital Budget Compared to 2005 / 77% / 73%
Decrease in 2006 Capital Budget Compared to 2005 / 2% / 0%
Remain the Same / 18% / 13%
Don't Know / 2% / 7%
No Answer / 2% / 7%
*Note: In the previous survey, the question asked “With regard to your own company’s overall Capital Budget – do you think you’ll see an increase in your overall Capital Budget, a decrease, or will your overall Capital Budget remain the same for 2005 vs. 2004?”
Capital Budgets Rising. More than three-quarters (77%) of respondents working in the natural gas and oil industry say their company’s overall capital budget will increase in 2006 compared to 2005. Note that in our November 2004 survey, 73% of respondents said their overall capital budget was increasing.
(1A) Question Asked: If your Capital Budget is increasing, where is the increase primarily being allocated?
Is it going more to developmental drilling (i.e., lower risk) or exploration drilling (i.e., higher risk)? (n=37)
Developmental Drilling (i.e. lower risk) / 32%Exploration Drilling (i.e. higher risk) / 19%
Both / 35%
Other / 14%
Among those respondents whose companies are increasing their capital budget in 2006, 32% say the increase is being allocated to Developmental Drilling, while 19% say it will be used for Exploration drilling. Another 35% say the increase will be used for both.
A sample of Alliance member responses can be found in Appendix A.
(2) Question Asked: Across your industry in 2006, do you think companies will be drilling Deeper Wells than they did in 2005, About the Same Depth, or Shallower Wells than in 2005?* (n=57)
Survey
Aug. 2005 / Previous
Survey
Nov. 2004
Significantly Deeper Wells / 14% / 10%
Moderately Deeper Wells / 54% / 40%
About the Same Depth / 21% / 27%
Shallower Wells / 0% / 0%
Don't Know / 2% / 17%
Not Applicable/No Answer / 9% / 7%
*Note: In the previous survey, the question asked “Across your industry in 2005, do you think companies will be drilling Deeper Wells than they did in 2004, About the Same Depth, or Shallower Wells than in 2004?”
Deeper Wells for 2006. By a 68% to 0% margin, industry respondents say they believe companies will be drilling deeper wells in 2006 than they did in 2005.
(3) Question Asked: Which advanced recovery techniques and/or companies do you think will be most in demand over the next 12 months? (n=47)
Horizontal/Directional Drilling / 43%Enhanced Oil Recovery / 13%
General Drilling / 11%
Deep Sea Drilling / 9%
Water Injection / 9%
Halliburton / 6%
3D Seismic / 6%
Other / 45%
Strong Demand for Horizontal Drilling. Horizontal/Directional Drilling (43%) was cited as the advanced recovery technique in highest demand during the next year.
A sample of Alliance member responses can be found in Appendix B.
(a) Horizontal Drilling (43%)
· MYD4560 writes, "Branched Horizontal wells."
· JLP23190 writes, "Improvements in directional drilling and fracture stimulation - Baker Hughes & Halliburton are leaders in research and improvising."
· PGA2274 writes, "Horizontal Drilling because it is a method to expand natural gas exploration.”
· BAS23529 writes, "Extended reach horizontal drilling and coil tubing drilling services."
· SOR1746 writes, “More directional drilling with several wells can be located at one spot.”
· SCK1238 writes, “The most-used advanced recovery technique is lateral (horizontal) drilling coupled with real-time visualization. The demand for this is certainly increasing, and we expect it to continue.”
(b) Enhanced Oil Recovery (13%)
· TMO8116 writes, "At current oil prices, expect to see a significant increase in all of the following: Steamflood / thermal recovery processes, miscible gas-flood, other forms of enhanced-oil-recovery (EOR) processes (polymer, etc).”
· RCO5926 writes, "Enhanced Oil Recovery / Anadarko Petroleum."
· BPP8880 writes, "In Alaska, there is improved technology for getting oil from or extracting oil from smaller wells, fields."
· FOO23181 writes, "Deep water technologies, offshore hubs, CO2 injection and sequestration for enhanced oil recovery, innovative water disposal solutions."
(c) General Drilling (11%)
· WER7325 writes, "O&G companies are very cost focused on technologies that can provide a quick payout - again, look at the investments Shell/Chevron are making to get an idea EX: more efficient drilling (Rotary technologies), more efficient production (larger tubulars), more efficient downhole motors, better software and reservoir technologies, etc."
· XIE2585 writes, "In drilling, new generation of LWD/MWD/DD is coming out with higher functionalities."
· OKW23520 writes, "Drilling rig contractors and the major oil service companies and other suppliers like pipe."
· GEG1531 writes, “DRILLING (for reserves that were previously sub marginal.”
(4) Question Asked: Which of the following gas & oil industry resources - if any - are currently exhibiting signs of a buildup (i.e. surplus) vs. a shortage (i.e. in short supply)? (Check All That Apply) (n=57)
Buildup / Shortage / NetDifference
Score
Drilling Personnel / 14% / 56% / -42
Drilling Services / 14% / 54% / -40
Professional Personnel (e.g., Geologists,
Geophysicists, etc.) / 16% / 54% / -38
Drilling Equipment / 19% / 47% / -28
Seismic Services / 11% / 16% / -5
Shortages in Personnel and Services. Respondents report that the biggest industry shortages currently lie in Drilling Personnel (Net Difference Score = -42), Drilling Services (-40) and Professional Personnel (Geologists, Geophysicists; -38).
(4A) Question Asked: Is a lack of availability of gas & oil industry resources (such as drilling services, personnel, etc.) affecting overall industry production/ exploration? (n=57)
AffectingProduction / Affecting Exploration
Lack of Availability of Resources is Causing a Significant Decrease / 9% / 14%
Lack of Availability of Resources is Causing a Slight Decrease / 54% / 47%
Lack of Availability of Resources is Not Causing a Decrease / 23% / 18%
Don't Know / 12% / 21%
Not Applicable/No Answer / 2% / 0%
Lack of Availability Affecting Production/Exploration. Three-in-five (63%) respondents say the lack of availability of industry resources (e.g., drilling services and personnel) is causing a decrease in overall industry production and exploration.
(5) Question Asked: Will your company be reducing or increasing its outstanding debt in 2006?* (n=57)
Current Survey Aug ‘05 / Previous Survey Nov ‘04Significantly Reducing / 14% / 20%
Somewhat Reducing / 37% / 33%
No Change / 25% / 13%
Somewhat Increasing / 11% / 3%
Significantly Increasing / 2% / 0%
Don't Know / 11% / 20%
No Answer / 2% / 7%
*Note: In the previous survey, the question asked “Will your company be reducing or increasing its outstanding debt in 2005?”
Outstanding Debt in 2006. Fifty-one percent of industry respondents (51%) report their company will reduce its outstanding debt in 2006, nearly the same as the previous survey. Another 13% say their company will be increasing its outstanding debt, 10 points higher than in November 2004.
(B) Production
These next few questions were only asked of those respondents whose company engages in Onshore and/or Offshore Production (n=44)
(6A) Question Asked: We want a glimpse into your company's production investment in 2006. Do you think you'll invest more in production in 2006, less in production, or the same amount in production in 2006 as you did in 2005?
Respondents whose companies engage in Onshore Production (n=43)
Current Survey Aug ‘05 / Previous Survey Nov ‘04More Production Investment in 2006 Compared to 2005 / 72% / 88%
Less Production Investment in 2006 Compared to 2005 / 5% / 0%
Same Amount / 14% / 6%
Don't Know / 7% / 6%
Not Applicable / 2% / 0%
*Note: In the previous survey, the question asked “Do you think you'll invest more in production in 2005, less in production, or the same amount in production in 2005 as you did in 2005?”
Question Asked: By what percentage will there be more investment? (n=31)
Current Survey Aug ‘05 / Previous Survey Nov ‘04No Change / 0% / 6%
1-10% / 23% / 53%
11-25% / 45% / 29%
26-50% / 16% / 0%
Greater Than 50% / 0% / 0%
Don't Know / 13% / 12%
Not Applicable / 3% / 0%
Respondents whose companies engage in Offshore Production (n=32)
Current Survey Aug ‘05 / Previous Survey Nov ‘04More Production Investment in 2006 Compared to 2005 / 69% / 83%
Less Production Investment in 2006 Compared to 2005 / 6% / 0%
Same Amount / 16% / 6%
Don't Know / 6% / 6%
Not Applicable / 3% / 6%
Question Asked: By what percentage will there be more investment? (n=22)
No Change / 0% / 6%
1-10% / 32% / 50%
11-25% / 50% / 28%
26-50% / 5% / 0%
Greater Than 50% / 0% / 0%
Don't Know / 9% / 11%
Not Applicable / 5% / 6%
2006 Production Investment. More than 70% of respondent companies engaged in onshore production say they will invest more in 2006 compared to 2005 – however this is down from 88% in Nov. 2004. Among respondent companies engaged in offshore production, 69% say there will be more investment in 2006 compared to 2005 – also down from our previous survey.