Hydraulic fracturing has opened up new opportunities for deep water and ultra-deep water exploration and production. Opportunities like these are often stifled through government regulation and limitations on drilling such as permits. The Obama administration has lifted the drilling moratorium in June 2010 concerning the BP oil spill, and began issuing the most deep-water oil-drilling permits for the Gulf of Mexico since 2007. In the first half of 2012, 104 permits were issued to companies which is a 142% increase over last year.
Exploration and production (E&P) corporations Chevron (CVX), Apache (APA) and Shell (RDS.A) still hold 42% of the permits in the Gulf of Mexico, even though over 242 permits were issued since the moratorium was lifted. Despite natural gas prices averaging a dismal $2.58/mcf so far this year, WTI crude oil prices have averaged $96.20 per barrel, according to market data. Thus, many E&P companies have begun to shift their focus from gas plays to oil, which has been very beneficial toward the oil and natural gas services industry. E&P companies engage in these capital intensive projects to reap the benefits of potentially significant oil reserves.
Rise in spending is apparent
Schlumberger (SLB) has stated that its third-quarter profit rose 9.5 percent as customers of their services have expanded their deep-water exploration and production projects. Drilling offshore deepwater wells can be as much as 10 times more service intensive for E&P companies, which is important for oilfield services who depend on E&P spending for revenue generation. Organic spending for E&P companies has seen an overall increase for both exploration and development, and is expected to further increase as more permits are issued.
© 2013 Market Realist, Inc.
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