Oil & Gas Exploration & Production Industry Trends

Declining US Oil Production

US crude oil production declined 20 percent in the last decade and 5 percent annually in recent years as existing oil fields are depleted. Despite new exploration activity, proven crude oil reserves have declined for the past 50 years and have leveled over the past decade at roughly 21 billion barrels.

Increased Use of Horizontal Drilling

A recent technology advance has been the advent of horizontal drilling, which uses a flexible pipe with a steerable drill bit on the end. Multiple horizontal holes can be drilled from a single vertical shaft, allowing production of more petroleum or gas from a single hole. Horizontal drilling from a single hole can also reduce the impact of drilling in environmentally sensitive areas.

Increasing Number of Drilling Rigs

The number of drilling rigs in operation depends on oil prices. New drilling rigs can cost about $20 million, depending on the type of drilling, and rigs need to be torn down and completely refurbished every few years. World oil demand has been increasing since the last recession, causing prices to rise and making drilling more attractive. The number of active rigs in the US bottomed out at fewer than 500 in second quarter 1999 and has steadily increased to over 1,700 by the beginning of 2007.

More Deep Sea Drilling

In search of major oil and natural gas finds, drilling companies are drilling in deeper waters and to greater depths than previously. Drilling in the Gulf of Mexico has been successful at 25,000 feet from an ocean floor under 10,000 feet of water. Geologists believe reserves of as much as 40 billion barrels may lie in older rock formations known as the lower tertiary. Drilling at these depths is very expensive, costing as much as $800,000 per day or about $100 million per well.

Higher Supplier Prices

The rise in drilling activity, spurred by high oil prices, has increased demand for oil and gas field services and equipment. High demand has driven up prices for both third-party drilling services and field machinery and equipment. Over the past three years, prices for oil and gas support services have risen 40 percent; prices for oil and gas field machinery and equipment increased 27 percent.