OILFIELD EQUIPMENT Home-grown growth prospects are lukewarm at best

Mar 01, 2008 | 01:33 PM |

The outlook for global drilling activity is somewhat hazy, clouded by a combination of factors, including questions over the state of the U.S. economy, the weak greenback and soaring costs.

The outlook remains strong in some parts of the world, like Russia and Mexico, while it's weaker in others, according to service providers at the forefront of the oil and gas industries.

Canada falls into the latter category for a number of reasons, Gene Shiels, assistant director of investor relations at Baker Hughes Inc., Houston, said. "The economics, particularly for natural gas producers, will be very difficult due to the weakness of the U.S. dollar vs. the Canadian dollar, relatively high service costs (due to a labor shortage, which boosts salaries), lower gas prices and the higher royalties in Alberta for oil and natural gas, which will take an additional $1.4 billion out of the pockets of producers."

Despite major oil drilling activity in Canada, overall rig counts were down last year from 2006 levels, and Shiels doesn't see any indication the situation will improve anytime soon. The drill rig count averaged 343 in Canada last year, down 27 percent from an average of 470 rigs in 2006 and a sharp reversal from the 2.6-percent gain from 458 rigs in 2005 and the 24.1-percent jump from 369 rigs in 2004, according to data compiled by Baker Hughes.....