American Oil and Gas Reporter - January 2023 - 40

Outlook 2023
Pivotal Population
Eventually the annual demand growth will end, but not
because the political elite has decreed it. Demand will fall
when the world's population declines.
The United Nations predicts this will happen in 50-75
years, but the United Nations' own population census indicates
that every continent except Africa has seen birth rates
nosedive in the last eight years. Europe's population already
is shrinking. North American population will start shrinking
in 5-10 years, as will that of Latin America. Asia's population
shrinks in 10-15 years.
Our firm thinks it is quite likely that the world's population
will start to fall in a decade or two and that will be the cause
of a gradual decline in demand for all types of energy. If you
are skeptical, travel around the planet and ask people of
childbearing age how they feel about bringing a baby into
the world.
Until then-let's say 2035-demand for what the industry
makes will rise another 10 million barrels a day. We have
work to do.
A Matter Of Money
The two other major factors defining U.S. drilling activity
in 2023-upstream discipline and scarcity of capital to oil
field service companies-can be boiled down to a single
factor: Lack of money.
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
Despite being quite profitable, the industry has limited
capital to spend. Investors and lenders have forced that limit
on the industry. We like to complain about the federal government's
negative impact on the U.S. oil and gas industry, but it
is far more constraining that investors and lenders want us to
deploy less capital. If this was not the case, we all would be
seeing multiple financiers with plentiful amounts of capital in
the form of equity and debt ready to fund the industry, which
is currently the country's most profitable sector.
Consider that exploration, drilling and production company
management teams got the message in early 2019 to stop
outspending cash flow, reduce debt and return capital to
shareholders. The industry already was slashing drilling
activity in 2020 when the Covid-19 pandemic hit. Covid
merely accelerated and exacerbated what was already
underway. By early 2021, production companies were financially
healthy, cash flow positive, and well on their way to
becoming an industry that, for all practical purposes, was
debt free if it wanted to be.
But oil field service companies are unlike their customers.
Upstream oil and gas companies can almost eliminate capital
expenditures and produce their way to prosperity. Service
companies, by contrast, must work to earn money-service
firms are the recipients of oil and gas companies' CAPEX
spending-and work was scarce for a year.
To stay alive, service companies robbed parts from idle
Other US
Rockies
East Tx/NoLa
Bakken
Eastern
MidContinent
Permian
South Texas
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
45,000
$0
AVERAGE
In 2023, the U.S. land contract drilling market likely will continue
gradual but sustained growth, with the Permian Basin expected to
lead the uptick. Mirroring trends in onshore drilling activity, U.S.
land rig day rates are projected to continue edging higher throughout
40 THE AMERICAN OIL & GAS REPORTER
2023. These results are based on a review of 40 land contract
drilling contractors and exclude shallow vertical hole drilling rigs.
Spears & Associates attempted to include only a rig's day rate and
not ancillary services that are sometimes added to that rate.
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American Oil and Gas Reporter - January 2023

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