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May 6, 2002 9:10pm — From Petroleum Finance Week, May 6, 2002, Vol. 10


The United States is headed for an energy supply train wreck, oil and gas executives warned at two major energy conferences this spring.

“Producers are more conscious of maximizing their present value. But that comes at the cost of increasing the average well decline rate to 50 percent from 35 percent just a few years ago,” Anadarko Petroleum Corp.(NYSE: APC) President John Seitz said in a keynote address to Howard Weil’s 30th annual energy conference in New Orleans last month.

“The International Energy Agency projects oil consumption will rise 60 percent in 20 years. So we, in essence, need to add 2 million incremental barrels per day, every year, to meet that — or the equivalent of five Saudi Arabias in those two decades,” he explained. “But non-OPEC increases will be limited. Mergers have reduced organic growth possibilities and most companies are much more disciplined in what they drill.”

Seitz suggested that the real debate in the United States should be about natural gas policy issues, not about drilling for oil in the Arctic National Wildlife Refuge. “We all have heard about many power plant projects being canceled or delayed. But due to all the construction of the last two years, this summer we will have an additional 45 gigawatts of gas-fired capacity on line, and that translates to at least one-half to four billion cubic feet per day of new gas demand,” he said.

“Every 1 Bcf [billion cubic feet] burned by the new plants is a Bcf not available for fall storage,” Seitz observed.

At the 2002 Executive Oil Conference in Midland in March, sponsored by Petroleum Strategies Co., two speakers issued similar warnings. Jim Lightner, president of Denver upstream independent Tom Brown Inc. (NASDQ: TMBR), cited some telling statistics from the U.S. Energy Information Administration. He wondered aloud if people really fathom the degree to which wildcat drilling in the United States has disappeared, and what that implies for security and cost of oil and gas supply.

Recall that in 1981 at the height of the oil boom, he said, operators drilled 17,500 wildcats in the U.S. Then in the depths of the drilling depression in 1986, they sunk only 7,156 such wells. “We all thought things could not get any worse — but they did,” said Lightner.

Throughout the 1990s, the wildcat count remained below 5,000. And in 2000, only 2,076 wildcats were drilled — less than a third of the amount drilled during what is commonly regarded as the industry’s nadir.

“What has happened to our industry? Where have all the prospects gone?” asked Lightner.

“Over the last 10 years, most of the gas supply and drilling activity has been from exploitation, not exploration. The problem is, this is a finite game.”

It was no wonder that noted macro oil analyst Henry Groppe, co-founder of the Groppe, Long, Littell consulting firm in Houston, said at the Midland conference that he thinks oil will hit $35 a barrel — and soon.


— Leslie Haines in Houston