oil industry analysts who early on had dismissed the September OPEC
confab as a do-nothing, ho-hum event were caught red-faced when
the cartel opted to decrease production, triggering reports of outrage
on the part of some of the prognosticators.
aren't the folks who spend their days "betting the farm" on hitting
the next discovery. Those who do might be more inclined to view
OPEC's apparent determination to maintain crude oil prices near
their current level as a much-needed Rx to invigorate the anemic
lacks confidence in prices," said longtime prospect generator and
geologist Frank Harrison, president of Lafayette, La.-based Optimistic
Oil and a past AAPG president.
is secure with $26-$28 oil and $5 gas, I think we'll see a lot more
drilling," he said. "We've been there before."
the frustration over the lack of any dramatic upsurge in drilling
activity in tandem with the healthy commodity prices that have prevailed
for the last year or so, a lot of new faces are emerging in the
form of small, new companies.
know exactly where all these companies are coming from," Harrison
said. "I didn't recognize a lot of people at APPEX -- they're new.
I think a lot of these people are going back and re-evaluating prospects
they had along the way that didn't quite meet economic standards,
and today they're viable.
is so litigious you almost have to form a company now, so you see
a lot of LLC companies springing up," Harrison noted. "I think one
reason is for protection, given the environmental concerns and other
types of pressures on the industry.
a number of new LLCs in Louisiana, and I don't know who started
them," he said. "They're out there prospecting, but a lot of them
may not be able to survive."
a real demand for good prospects, according to Harrison. He emphasized,
however, it's still difficult for independents to get prospects
funded unless they have 3-D seismic data.
add the cost of 3-D on to the tab for sophisticated hardware and
software needed for project development/evaluation and other costs
incurred by prospect generators, prospecting can be a pricey undertaking,
with no guarantee of recouping these costs.
more of the guys in SIPES say no one wants to pay for prospects,"
said Robert Pledger, president of Benchmark Oil & Gas.
put a $20-, $30- or even $50-thousand geological fee on a prospect,
which is not unreasonable for maybe six months of work," he said,
"and they give you a carried interest or a working interest with
them. If it's unsuccessful or not drilled, you end up with nothing
for your effort.
to recover from all those ugly frogs you end up kissing along the
way," Pledger noted.
or the lack thereof -- to fund drilling deals is an overriding concern
strange world we live in now," said Ron Neal, president of privately-held
Houston Exploration and Development, which has expanded its longtime
offshore-only focus to include some onshore.
prices are good, and services are modestly priced overall," he said,
"but there's no new money pouring in from Wall Street or other places."
may be available, but there's little inclination to sink it into
oil and gas companies. Fear of a sudden price drop or skepticism
about the ability to maintain growth in the case of a public company
are not the only culprits to blame for this dearth of interest on
the part of the financial community.
from the public -- Wall Street and the like -- painting us all with
a spray can, which covers a lot of area, because of Enron and others
like Dynegy," Neal said. "We're still suffering for their sins.
called an energy company, and I'm called an energy company," he
said. "We're vastly different, yet we were all painted with that
same brush. It was indiscriminate."
stressful business climate can be more challenging for some than
others, according to Neal.
killer to make money, especially as a public company," he noted.
"It's a good private industry business, but if you're public and
you can't grow regularly with sustainable growth, your stock can't
go up even though you may be profitable."
there were more than 400 public companies, as tracked by the Oil
& Gas Journal, according to Scott Johnson, managing director
Weisser, Johnson & Co., which serves as an agent to help arrange
financing, primarily for smaller, private companies.
2003 there were only 154, and we're shrinking fast," Johnson said.
"There have been no IPOs in the industry since early 2001.
interesting time in terms of the shift in how U.S. gas and oil development
is going to be financed."
as financing sources, the public financial markets are not supportive
of small companies in any industry, according to Johnson. However,
the mature producing regions in the United States are most appropriately
pursued by smaller companies.
is a job to be done," Johnson said, "but the question is where is
the money going to come from? -- the answer is private capital,
the major sources of private capital for the oil and gas industry:
Fewer of these around today.
and project financing: Nearly all went out of business following
Enron debacle, but the market is starting to come back and should
expand significantly from where it is today.
equity (private company equity): Basically a large number of private
equity dollars are available and we're likely to see more deals
getting done here -- investors are choosy, and it's a matter of
matching people with money.
really an important push and pull between the need for capital and
the supply," Johnson noted. "Private companies are the ones going
to do a lot of the development, and they must get money from somewhere
to develop reserves, especially natural gas, where demand is growing
over time, when you have a crying need, that need gets filled at
least to some degree."
it helps to sit back and re-think where you're headed and maybe
switch directions. Just as the seismic industry is focused in large
part on creating a new business model, so too are some of the E&P
optimistic about our business," Pledger said. "But I think we must
change the way we do business or get out -- we must re-group and
find a better way."
doesn't just talk the talk; he walks the walk.
Benchmark's need for capital and free himself from chasing money
so he could concentrate on exploring, Pledger opted to buck the
trend toward shunning the public arena.
it solo since 1977, Benchmark went public in 2000 by merging with
a Swedish company that raises capital, while Benchmark concentrates
on bringing the technology to the table. The merged twosome doesn't
go it alone, choosing to lay off a part of a project to a third
for us, as I look at where our industry is going, is we must find
opportunities and produce more reserves on a per dollar expended
basis from a risk viewpoint," Pledger said.
venture people we deal with are very sophisticated," he said, "and
they want to see you risking your projects. They want to see all
the application of the technology through
3-D, and they want the well control tied in and to know that you
understand the regional picture and... economics.
go into the legal side," he continued, "like the leases, title and
so on. All require this yet they don't want to pay for all that
many in the industry, Pledger finds it hard to shake the lingering
hangover from those vicious, unexpected price dips in the past.
In setting next year's budget, he's not using prices above $27 oil
and $3.50 gas.
the scarcity of public equity and the money lenders' current disinterest
in the industry in general, some companies are penetrating this
barrier, perhaps indicating that things may be loosening up a bit.
Brigham Exploration recently raised $40 million in a public equity
offering to accelerate its drilling program.
a pure drilling story, capitalizing on the field discoveries we've
made and also exploration drilling," said company president, CEO
and chairman of the board, Bud Brigham. "The fact that we were successful
in our offering hopefully is a good sign for the industry."
time of so-so rig activity, the company's aggressive drilling program
might be viewed as a good sign as well.
flow has grown, so has the drilling pace, which Brigham noted will
accelerate further as a result of the offering. Fifty-three wells
are on the schedule for this year compared to 35 in 2001. Formerly
a pure exploration company, Brigham said 60 percent of drilling
at CAPEX has been developmental for the last several years and will
continue this way.
been the best of both worlds for our company," Brigham said. "We
expected service costs to come up more than they have, but there's
been no pressure there, and gas prices are strong.
are unprecedented," he noted.