Rig Shortage To Stunt Oil Output Growth For Years - Reuters

[hatrack]

LONDON (Reuters) - A global shortage of rigs will hamper attempts to raise global oil and gas output for years, oil service company executives and consultants said on Monday. As producers look to boost crude and gas output to meet soaring demand growth, the global supply of rigs is stretched to the limit and is insufficient to meet industry needs.

"To get up to speed to meet the drilling needs of the industry, it's going to take a lot of time," said Pete Miller, Chief Executive of oil drilling equipment maker National Oilwell Varco. Many rigs in service need to be replaced, Miller told an oil industry conference in London. He said the average age of rigs worldwide is now older than the average age at which they would typically be scrapped.

"We have a problem, it's real and it's going to be extremely tough to deal with," Matthew Simmons, Chairman of Houston-based energy investment bank Simmons & Company International, said at the same event. "We are in a rusty industry. We have the world heading to astonishing growth in oil and gas demand. To meet that demand envisages an awful lot of drilling."

EDIT

New rigs that are being built to plug the gap in China and India will not solve the issue as many of the designs being used are old, both Miller and Simmons said. Those rigs will not have the technology needed for directional drilling and working on high-pressure reservoirs, Miller said. Miller said shareholder pressure for oil service companies to spend cash revenues on share buybacks and dividends had not helped the industry to build capacity since the recession ended.

EDIT

http://za.today.reuters.com/news/newsArticle.aspx?type=businessNews&storyID=2006-09-19T063630Z_01_BAN923759_RTRIDST_0_OZABS-ENERGY-RIG-SHORTAGE-20060919.XML

[still_one]

1. Oil prices drop as supply threats ease

http://news.yahoo.com/s/ap/20060919/ap_on_bi_ge/oil_prices

[cspanlovr]

2. Are we ever prepared for anything? "hey, who was supposed

to order the rigs?" :shrug:

[Jackpine Radical]

3. Ah, the wonders of capitalism.

Thank God we never fell for any of that gubbamint planning nonsense.

[acmavm]

4. How conveeeeeeeennnnnnnient!

[lapfog_1]

5. There is a reason that the industry isn't investing in new

drilling rigs... the same reason that they aren't hiring lots of new petroleum engineers.

And it's certainly not for lack of money.

[hatrack]

6. Could that reason be that it COSTS MONEY to do those things?

Call me crazy, but . . . .

[lapfog_1]

9. Close... more like "there isn't any oil to drill"

Or rather, there might be some oil... but not enough to make the investment, even at today's prices.

[TransitJohn]

10. Uhhhh

...they're hiring tons of new pet eng's, and geologists.

[madrchsod]

7. yes it costs a lot of money to build rigs

and it costs a lot of money to hire and train people to run those rigs. it costs a lot of money to build the rigs-if- they can find the people and "space" to build them. of course the insurance industry has raised rates on coverage because of global warming. then throw in the fact that oil engineering has not been a golden career path for the last few years and there is a big gap in the engineering field. this whole problem was being reported last year in oil production magazines. need a job? the oil industry is hiring from the guy on the drilling rig to the engineer in the computer room....

[NOLADEM]

8. Some of this is real

Most of the US production sites for rigs are here in Louisiana, and they are booked solid for years to come...Driving down HWY 90 is amazing...there is only so much that can be done.

We don't have enough steel supply, supply boats, work boats, jack rigs, floaters, drill ships, pipeline, etc right now to fix the damage from Katrina, let alone dramatically increase drilling...

Plus, each new well is in a progressively deeper formation in progressively deeper water.

It takes YEARS and hundreds of millions of dollars to explore, pilot, design production, fabricate the rig, lay the pipeline on the sea floor, and feed into the crude import system.

Remember, a few years ago oil was very cheap, and investments of this sort simply weren't feasible financially. Now they are, but it will take years to catch up.

This is just how it is. I am not saying they should not have thought ahead, or that oil companies are not evil in many ways, but on this, it is just how it is.

I invite all of you to come down to the Louisiana coast, go offshore fishing with me, and see the UNREAL amount of offshore investment it takes to fill your car and heat your home. It is ASTOUNDING. And most of all, it is expensive and takes time.

Last factoid...all of the top 10 tallest structures in the world are oil platforms, if you include the supports to the sea floor.