Oil Crunch Likely After Fall in Oil, Gas Exploration
Source: Reuters, Christopher Johnson (7/14/09)
"It is bound to lead to a supply crunch sometime between 2013 and 2016. . ."
Christopher Moyes, president of Dallas-based Moyes & Co. Inc, which manages acquisitions and investments for dozens of medium-sized oil and gas companies, said the spiraling cost of capital over the last year has slashed the number of exploration projects and hit the value of potential oilfields.
As the cost of financing all projects has escalated, oil companies are turning their backs on risky exploration and are instead under pressure to obtain hydrocarbon resources through the easier route of mergers and acquisitions.
"It is bound to lead to a supply crunch," Moyes told Reuters in an interview. "Sometime between 2013 and 2016 we will have another price crunch."
"The last three price spikes have had a lead time of about 1,500 to 2,500 days. The bottom of the price trough was January. It is about 1,500 days until where we run into the supply crunch again, when demand rises and we can't supply."
"The problem will be a demand issue out of China and India, putting pressure on the market, causing prices to go up and we won't be able to turn the taps on fast enough."
The International Energy Agency, OPEC and other agencies have warned that an oil supply crunch is possible if exploration does not begin to pick up fast.
Evidence of a collapse in upstream activity is mounting.
Oil and gas drilling in British waters fell by 57% in the second quarter, with only 15 exploration and appraisal wells started. U.S. gas drilling rigs were down 56% YOY last week, according to oil services firm Baker Hughes.
As demand for new acreage has fallen, so have prices, with the value of some oil and gas fields down as much as 90%.
"If the industry gets more money it will start new developments. But it takes lead times of two to five years to get even existing discoveries on stream," he said.