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COPYRIGHT 2003 Adams Business Media
Signs of an impending increase in demand for oilfield services--from the drilling of wells to supplying specialized services and equipment to stimulate and maintain production--have been in place for several months. Overseas supply uncertainties created by civil unrest in Venezuela and possible war with Iraq have pushed crude oil prices. Key members of OPEC have the capacity to replace any lost Venezuelan or Iraqi production, but consuming countries' crude and product inventories are so low that many experts believe strategic petroleum reserves will have to be tapped before the end of 2003.
Meanwhile, natural gas prices have retreated from midwinter spikes, but consumers and producers face the prospect that they won't fall very far--in the wake of declining production and little significant new drilling during 2002.
Leading oilfield-service observers are viewing demand-recovery prospects carefully. "It's one of the few times in history when oil-service stocks haven't moved up with commodity prices," observes J. Marshall Adkins, who follows the sector for Raymond James & Associates Inc. in Houston. "Clearly with these commodity prices, particularly with natural gas, which we think is more sustainable, you're going to see more activity."
Early-March rig counts for North America were much higher than expected, says Geoff Kieburtz, who leads Salomon Smith Barney Inc.'s oil services research group in New York. "However, this outperformance was generated in the less profitable U.S. land and Canadian markets, with offshore markets well below expectations," he adds. "Moreover, in international markets, the year started out well below our forecast, particularly in Latin America and Africa."
Michael E. Wiley, chairman, president and chief executive officer of Baker Hughes Inc., says, "The market was more difficult than we expected in 2002." But, meanwhile, "we improved our oilfield focus with our sale of Eimco and our pending sale of West African oil and gas properties.
"We introduced new technology at every division. In fact, our new product revenue rose to 21% of total revenue from 15% in 2001. We extended our presence in growing markets. We continued to build on our high-performance culture, based on our core values," says Wiley.
In 2003, he anticipates natural gas to continue to dominate North American drilling. "The inventory deficit compared with last year continues to grow. We believe current drilling is insufficient to meet necessary production levels." The company expected drilling would increase in second-half 2002. "It didn't. It's hard to predict when the recovery will occur, but it will have to in order to replace falling inventories. We expect this to happen by the second half of 2003."
Overseas, the company anticipates a record year in Russia this...
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