Hurricane threat not sole reason for USG work slowdown: analyst

Houston (Platts)--13Sep2006

The reluctance of E&P operators to drill as feverishly in the Gulf of
Mexico this summer as they had earlier in the year can be pegged in part on
skittishness in the face of the seasonal hurricane threat, but that is only
part of what has spurred the current sluggishness in the area, an
ODS-Petrodata analyst said Wednesday.

"There are several factors that come into play with softening of demand"
since around May, Carina Notenbaert, Americas rig team leader for ODS, said
during a webcast on the jackup market outlook sponsored by Wachovia Capital
Markets.

Some companies -- particularly smaller operators -- were not used to
paying the dramatic rig dayrate increases seen earlier this year, and the
higher-than-expected costs "exhausted (their budgets) much more quickly than
anticipated," Notenbaert said.

In addition, soft natural gas prices that lingered for much of the first
half of 2006 affected the smaller companies more than larger operators,
causing them to pause their work programs, she said. "They said it just wasn't
economical for them to drill at those gas prices when the cost of the rig was
so high," she added.

The analyst concurred with a view widely held by much of industry and
Wall Street that drilling will pick up strongly again later this year or
certainly in first-quarter 2007. "All indications are that this is just a
temporary blip," said Notenbaert.

However, oil companies plan to allow for dayrate cost hikes and also
labor and materials price increases in their 2007 budgets, she said. "They
will not be taken by surprise again by these high dayrates as they were at the
start of 2006," she added.

While most companies are still working on next year's budgets and are
reluctant to reveal how much they will spend, "from what I gather there will
be an increase," said Notenbaert.

-- Starr Spencer, starr_spencer@platts.com

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