He seems to have a clear understanding that this country needs a comprehensive energy policy and hopefully he sees a piece of it as expanded offshore drilling. We can talk about alternative energy all we want, but to get there we have to expand offshore drilling to bridge the gap in the long term." Wells said a key to that expansion is ensuring adequate funding for the U.S. Minerals Management Service, the agency that handles geological and environmental studies of offshore lease tracts to prepare them for exploration. "We must make sure Congress doesn't starve MMS and be the reason more areas aren't opened to exploration," Wells said. "Obama is in the right position to do what's right for the future, because when a Republican talks about expanded drilling, it produces an automatic response from opponents. But, when a Democrat talks about it, the nation could see some results."
Industry Starting To Feel Affects
With Main Street now seeing the affects of Wall Street, declines are beginning to be felt in the oil and gas industry. "The big driver in North America is natural gas and we're certainly seeing a falling rig count on land already and that will probably impact the Gulf of Mexico, at least on the shelf," said Gary Flaharty, a research specialist for Houston-based Baker Hughes Inc. "I think the deepwater producers will hold up OK and on a global basis oil is fundamentally tight. Obviously, we have the impact of a global recession. Natural gas production was up about 10 percent last year, but next year the Department of Energy expects production to be flat. So, we may see declines until those numbers get back more in line with demand." Robert Socha, vice president of marketing for Lockport, La.-based Bollinger Shipyards, said the shipbuilding sector was insulated from the downturn until recently. "When oil prices started to slip, boat utilization -- while still strong -- began to fall a bit and that trickles down to shipyards," Socha said. Customers began to revamp budgets, especially for those projects requiring new lines of credit, Socha added. "Day rates are still up at this point and the utilization is still there, but the industry is hearing from customers to do what they can to reduce rates now," Socha said. "For the most part, industry has been hesitant to jump in and reduce rates and from a shipyard perspective, this is a seasonal slowdown anyway." With an eye on bridging the economic downturn, Bollinger began a new-build program based on specula28 MN
tion. The program, which calls for 12 new 210-foot OSVs, will keep its workforce intact and the vessels will be sold to the highest bidder in the future. In fact, Bollinger sold the first two vessels from the program to Odyssey Marine via an online auction. "These vessels are bridging the gap between now and the start of a new government contract," Socha said. "Bollinger is continuing to aggressively move forward. We're improving our shipyards and building larger drydocks to handle larger supply boats to support our customer base. We're building a better Bollinger." At Tidewater, Bennett said it is hard to tell now what 2009 will hold. "We continue to be going through a bit of a transition that will likely last a while, but it's difficult to know what the oil companies will be doing in 2009, because they haven't disclosed their budgets yet," Bennett said. "Everyone knows 2009 will have its challenges and fortunately we've been through these times before. We know how and where to cut costs and we're monitoring our vessels closely." On Dec. 19, Barclay Capital's Original E&P Spending Survey was released, painting a cloudy picture for the domestic and global oil and gas industry. According to the report, the sharpest declines will be felt domestically, as companies predicted a 26 percent drop in spending to $79 billion from $106 billion. Globally, however, the industry is expected to contract a modest 12 percent, with spending totaling $400 billion from $454 bill a year ago. "Given the longer-term nature of international projects and the dominance of the majors and national oil companies internationally, E&P cap expenditure budgets outside North America are showing more moderate declines down 6 percent in 2009 to $300 billion from $319 billion in 2008. This would end a nine-year upturn," the report states. "That [$300 billion] is still a pretty darn healthy level of spending," Bennett said. "So, the sky isn't falling. Are we seeing a hick-up? Sure we are. But on a much longer term basis, basic fundamentals are still good and should cause oil prices to go up again. Now no one knows the timing of that. We believe reasonable [oil] prices are in the $70 to $80 price range." But for now, it appears the oil and gas industry and its support sector is weathering the economic storm. "Our business doesn't change on a dime," Bennett said. "It takes a little while for any real market change to affect us."
January 2009