The number of rigs operating around the world grew 14% this year, bringing the total to 2,948. This is a continuation of the previous year's increase of 15%. Growing consumption of hydrocarbons, especially in the U.S., China and former Soviet Union, is driving demand.
"As long as we drive cars, you have to be bullish on oil," said Jim Wicklund, managing director and senior equity research analyst for Banc of America Securities.
Wicklund recommended that contractors seize the current opportunity to recapitalize rig fleets when payback is guaranteed by customers. Also, operators should not get too comfortable with oil demand, since many producers, including ExxonMobil, see gas becoming the more important hydrocarbon in the next 10 years.
"This is a cyclical industry. Right now what everyone is concerned about is the North American natural gas market," said Wicklund.
He also pointed out that the current location of the majority of operating rigs does not accurately reflect where resources are plentiful. Currently, 70% of the world's rigs are in the U.S., which only accounts for 5% of the world's hydrocarbon reserves. In the next 10 years, Dubai could be a major corporate center for the oil and gas industry.
The disproportionate presence of rigs in the U.S. is due in part to the fact that 65% of the world's oil reserves are held by countries not open to Western markets, he added.
Martin Craighead, president of Baker Hughes Inteq, said technology being used by the service industry is both increasing production while reducing the visual impact on the landscape.
In the 1930s, oil rigs littered the sands of Long Beach, California, home of one of the nation's largest oil reserves. Today, technology has advanced so that more oil is being produced while the beaches remain open for the public. Craighead cited innovations in directional drilling and other subsurface technology for this.
In the 1990s, right before the current boom in drilling technology, horizontal wells were producing around 3,000 barrels of oil per day. In the 2000s, directional wells can produce closer to 10,000 barrels per day.
Future innovations may allow producers to find oil deposits with up-to-the-minute data, he added. "The ability to search, if not hunt, for real-time oil deposits is not that far away."
Cloyce Talbott, chief executive of Patterson-UTI Energy, said Americans' appetite for hydrocarbons is going to continue unabated, driving up the price of decreasing amounts of world reserves. "Just a few years ago, we wondered if oil would ever be over $20 a barrel. Now we want to know if it will ever be under $35."
Increasing demand from China and the former Soviet Union plus a drop in OPEC spare capacity from 16 million barrels per day in the 1980s to about 1 million barrels today point to the fact that cheap energy is unlikely to return.
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