With per barrel oil prices at an all time high, many investors are wondering if this is still a good time to invest in oil and gas drilling projects. The DOE Energy Information Agency’s Long Term Forecast projects oil selling for $24.50 a barrel in 2010 and around $30 a barrel in 2025. At the same time, the agency’s Short-Term Energy Outlook sees oil remaining above $55 a barrel through 2006. Given all the factors that will ultimately influence the actual price of oil, there’s plenty of reason for potential investors to wonder: ever increasing Chinese and domestic demand for energy, producers operating near maximum capacity, petroleum refinery capacity issues, new recovery technologies including microbes and CO2 and alternative energy sources, etc.
One way to get a handle on whether to invest now in domestic oil and gas drilling projects is to look at rig counts: the number of oil/gas wells that are currently being drilled in the US. According to Baker-Hughes’ latest report (July 22, 2005) there were 1410 active rigs in operation, up 6 from the prior week and up 194 from a year ago. With the average oil well costing several million dollars or more to drill and complete, the active rig count trend is pretty good reflection of the industry’s willingness to bet that potential returns continue to outweigh risks. And that’s a trend that is still moving in a positive direction. With the average producing well’s economic life of three to five years, the industry’s obvious bet is that oil and gas prices will stay firm long enough to recover investment costs and then some.
If you’re a regular reader of this blog you will know that each oil and gas drilling program carries its own potential risks and rewards and needs to be carefully scrutinized and understood.
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